THE next few days will be high stakes on global financial markets as the results of the Greek election are digested and, just as importantly, the G20's reaction to the outcome of the election, along with the United States and other central banks.
Closer to home, the Australian equity market will remain skittish as investors grapple with so many global unknowns, as well as the potential for more local profit downgrades as company boards sign off their company financial accounts for the June 30 year.
Companies that have suffered big share-price falls in the past few weeks are the ones most likely to announce profit downgrades or big asset writedowns as the Australian Securities and Investments Commission has been reminding companies of their accounting rule obligations when it comes to asset impairment charges.
In the past year the All Ordinaries Index has fallen almost 10 per cent, which has a knock-on effect on the annual financial-year performance of super funds, particularly balanced funds, and reduces the returns of Australia's $1.3 trillion retirement savings.
The brutal reality is local and global equity markets have been living in fear for the past three years and that won't change in the short term. World markets have been praying for a fairytale ending to the European crisis. What they have got is an unfolding nightmare that has left policymakers hoping that whatever the outcome of the Greek elections today, Greece will remain in the eurozone.
Ultimately, Greece will leave the euro and the outcome of today's election is unlikely to temper that inevitability. Who wins the election will merely determine the speed. If the pro-bailout New Democracy Party claims victory, Greece's departure will be slow, if the extremist Syriza wins, it will be accelerated, and if there is an inconclusive election outcome, the timing of its departure will be unpredictable.
But in the short term, the behaviour of markets will depend on the effectiveness or otherwise of the G20 meeting in Mexico today, where the focus will be on how to prevent an immediate breaking up of the eurozone and destabilising the world economy.
It is reaching a critical point were the problem is far greater than getting the right government to run Greece. Spain is in trouble and Italy looks likely being months away from requiring its own rescue plan.
The situation has got to a point where everyone, even people who normally don't keep up-to-date on the state of play in global economics and politics, have an opinion on what should be done. Unfortunately nobody has an answer, which has battered confidence around the world, heightened an already volatile market and started to create social unrest in some European countries.
Greece is almost ungovernable these days, a function of its bankruptcy, the collapse of proper institutional structures, chronic tax avoidance, an alarming decline in living standards and the abandonment of hope.
But the problem is wider than economics. Social unrest is a ticking bomb that has the potential to spread like wildfire.
Since the euro crisis first reared its head three years ago, there have been a series of European bailouts with draconian austerity-type conditions attached. The latest was targeted at the Spanish banks. What made this bailout different was that no one, except Spain, has said what the conditions will be. Spain, which a week before the bailout was announced swore black and blue that no bailout was required, said there will be minimal conditions attached to it. Not surprisingly, few believe the Spanish and expect the conditions to be revealed after the Greek elections.
If the Greeks elect a pro-austerity ticket and then there is a large gap between the conditions imposed on each country. and the Greeks feel they voted without knowing the truth, the social unrest will intensify.
In Australia, the problems in Europe have had an impact on market sentiment, confidence, credit markets and the dollar. If the problems get worse, they will ripple through China, one of Australia's biggest trading partners, as well as the US, which is already suffering from its own issues.
The crisis in confidence has dampened the appetite to trade in equities, with the average value traded in Australia at $4.5 billion a day, its lowest level in six years.
Last Thursday it fell as low as $3 billion. Such low volumes going through the market is playing havoc with stockbrokers, many hanging on by a thread. If conditions don't improve in the next few months, it will trigger another round of consolidation in an already shrinking industry.
Some stocks are trading at record lows. In the case of CSR, it closed on Friday at a new 25-year low as investors continue to bale out of the stock. CSR isn't alone. But sadly it doesn't have a lot of places to go as the assets that are left in this shrinking empire still have the asbestos poison pill, albeit in a much smaller wrapping. Even with no debt, that would slow down some interested parties from making a takeover bid.
While some of the share-price falls are tax-loss selling ahead of the close of the financial year, most of it is a symptom of so much negativity.
What happens in Greece over the next few weeks, followed by Spain and Italy, will dominate everything. Let's hope that sense prevails and that governments and the global financial system are well prepared. With the crisis going on for so long, they certainly ought to be.
Business groups warn Welsh government on 'living wage' - BBC News
The Welsh government is looking at how devolved public sector bodies could be encouraged to become 'living wage' employers.
Business leaders have warned the Welsh government not to push for private sector pay rises as ministers investigate public sector wage levels.
Labour has a manifesto commitment to find ways of making sure all Welsh workers are paid a "living wage".
Business groups say it may stop firms taking on staff or even mean layoffs.
The Welsh government says it is beginning to examine how devolved public sector employers can be encouraged to pay a living wage.
A policy group of interested parties is expected to meet over the summer.
“Start Quote
End Quote Robert Lloyd Griffiths Institute of DirectorsI'm afraid it just isn't realistic in the environment we live in”
Academics at Loughborough University have estimated a living wage is at least £7.20 an hour. The current statutory minimum wage is £6.08 an hour for workers aged 21 and over.
Welsh NHS workers and Welsh government civil servants are already paid at least the living wage.
A number of big private sector employers, including Barclays Bank and accountants KPMG, are also signed up to paying it.
But business organisations warned Welsh ministers not to try to force them to raise wages, for example by inserting living wage clauses in government contracts.
Robert Lloyd Griffiths of the Institute of Directors said he was concerned the living wage would effectively become the new minimum wage.
"Businesses would like to take on more staff and lots of companies that I talk to would love to be in a position to be able to take on more employees," he said.
'Very difficult'"It's very difficult out there and anything that now will hinder them from doing that, which they'd like to do, is going to cause problems.
"I'm afraid it just isn't realistic in the environment we live in."
Anna Milewski, of the Federation of Small Businesses, said: "We have to look at it from the employers' perspective, we've surveyed them.
"They say that an increase can, at best, deter them from taking on staff at worst actually result in them laying off staff, which would not be a positive outcome, of course."
“Start Quote
End Quote Julie James Labour AMIf we're the trailblazers we hope the private sector won't be so frightened of it”
The Welsh government said: "Unlike the minimum wage, the living wage is not statutory.
"However, any employer in the UK is free to sign up to the Living Wage Foundation's campaign. The Welsh government is starting to look at how devolved public sector organisations have been engaging with the idea and what it would take to encourage those organisations to become living wage employers.
"This is a key reason the Minister for Local Government and Communities [Carl Sargeant] has decided to set up a policy group, so that consideration of the benefits, in much the same way as they were in London, can be given collaboratively. That group has yet to be brought together, but it is anticipated that this will happen over the summer."
Labour AM Julie James said: "If we're the trailblazers we hope the private sector won't be so frightened of it and will actually see the benefit of a workforce which when they're happy and healthy work harder, stay longer, are more and actually do better work. So it's a win win, really."
Young campaigners, working with Save the Children, recently petitioned the assembly for a living wage above the minimum wage.
Iram Shahzad, a 13-year-old pupil at Fitzalan High School in Cardiff, told BBC Wales Sunday Politics that people in her community were working long hours but not earning enough money to cover their everyday essentials.
"It's not fair that they don't get to live a happy life," she said.
James Pritchard, head of Save the Children in Wales, said a living wage would be a "direct way of starting to tackle child poverty".
Sunday Politics is on BBC One Wales at 12:00 BST.Stocks at one-month high; eyes on Greece - TheBull.com.au
Stocks recorded their third big gain of the week and closed at a one-month high on Friday because of expectations that the central banks of countries around the world will step in to limit the damage from a debt crisis in Europe.
The Dow Jones Industrial Average climbed 115 points.
Now investors wait for a crucial election on Sunday in Greece that will help determine whether that country stops using the euro as its currency. Such an exit would destabilise financial markets.
Mario Draghi, president of the European Central Bank, said his institution stood ready to support Europe's banking system by continuing to lend money to solvent banks. He also appeared to leave open the possibility of an interest rate cut.
Draghi said in Frankfurt that the ECB has a "crucial role" in extending credit to banks in times of instability, when banks can't always borrow money on financial markets.
On Thursday, Reuters reported the ECB, the US Federal Reserve, the Bank of England and other global financial authorities were ready to act in concert to limit the fallout from Greece.
Investors also are more confident about the election itself, said Peter Tuz, a money manager, at Chase Investment Counsel, which runs mutual funds.
"There's a growing sense of optimism," he said. "The betting now is that the 'let's stay in the euro' segment of the population will win."
Borrowing costs for Spain were unchanged. They fell slightly for Italy, an indication that investors are feeling a little better about that country's solvency. They have been worried that Italy will have to seek financial rescue.
The Dow rose 115.26 points to close at 12,767.17, its highest finish since May 11. The Standard & Poor's 500 index climbed 13.74 points to 1,342.84, also its highest since May 11. The Nasdaq composite index rose 36.47 points to 2,872.80.
For the week, the Dow rose 0.9 per cent, the S&P one per cent and the Nasdaq 1.3 per cent.
The week included four moves of 100 points or more for the Dow, the first time that has happened since April:
- On Monday, the Dow lost 142 points as enthusiasm faded for a $US125 billion ($A125.2 billion) rescue of Spanish banks.
- On Tuesday, the Dow climbed 162 after a Federal Reserve official said he supported more measures to stimulate the economy.
- On Thursday, the Dow gained 155, primarily because of late reports about possible coordinated action by central banks.
Energy stocks rose the most Friday. OPEC oil ministers agreed Thursday to keep their production target steady, a compromise meant in part to soothe economically troubled countries.
A pair of weak economic reports helped push Treasury prices up and yields down.
A report on US factory production showed a drop in manufacturing, a key driver of economic growth. A gauge of manufacturing in New York sank to its lowest level since November.
The yield on the 10-year Treasury note fell to 1.60 per cent from 1.64 per cent Thursday. Traders have been shifting money into the safety of the Treasury market ahead of the Greek election. That higher demand has kept yields near all-time lows.
Among stocks making big moves:
- Microsoft rose 68 cents, or 2.3 per cent, to $US30.02 following reports that the company is in talks to buy Yammer, a developer of social networks within companies.
- Capital One Financial rose 80 cents, or 1.5 per cent, to $US53.81 after the company said uncollectable and delinquent loans at its credit card business dropped last month.
- Defence contractor AAR plunged $US1.23, or 10.6 per cent, to $US10.34. The company updated its forecast for fourth-quarter and fiscal-year earnings, and they were weaker than Wall Street expected.
- YPF, Argentina's state-controlled oil and gas producer, rose 72 cents, or 6.9 per cent, to $US11.17 after Mexican telecommunications billionaire Carlos Slim said he had acquired an 8.4 per cent stake in the company.
Exclusive: Secret EU summit document shows 'roadmap' to banking union - Daily Telegraph
Translated from the Brussels jargon, the PEC – president of the European Council – report will be Herman Van Rompuy’s preliminary text of the future of “Economic and Monetary Union”. This will be circulated in sealed envelopes next week.
The separate text will set out a “roadmap” to a banking union, polling debt via some kind of eurobonds and political union via EU treaty change over the next 10 years.
Also important and controversial is will the “other financial stability measures” paper, including financial transition tax proposal and moves towards a banking union that can be taken by the EU before the end of the year.
Britain faces major fight over an FTT, or some other banking levy, at a meeting of EU finance ministers on Friday ahead of the summit next week.
The UK – which has no veto under current proposals on deepening EU banking regulation – also faces the ECB becoming Europe’s main banking regulator and the creation of national bank resolution funds that can be asked to contribute to European bank bailouts on a “compulsory” basis.
UPDATE 1-Wall St Wk Ahead: Greek elections to keep tensions high - Reuters UK
(Updates with Greek elections under way)
NEW YORK, June 17 (Reuters) - In addition to backyard barbecues and beer, this Father's Day could see many investors with their minds on Greece.
The Greek election - the Sunday event that has the attention of the world's financial markets - is expected to create volatility in the new trading week, in particular, for U.S. stocks, according to analysts and investors.
"I think the S&P futures will see their high or low depending on the outcome within one hour of the futures' opening on Sunday night at 6 p.m. Eastern time," said Elliot Spar, an options market strategist at Stifel Nicolaus & Co.
Analysts have viewed the Greek election as a potential turning point for Greece, with all eyes on whether voters will favor the leftist Syriza party opposed to the austerity measures that are part and parcel of Greece's international bailout package, or the conservative New Democracy, which is committed to upholding terms of that agreement.
The election, which could result in Greece's eventual departure from the euro zone, is also seen as another hurdle for the wider euro zone, which has been embroiled in a debt crisis for well over a year.
On Sunday, there was little sign of enthusiasm at polling stations. First official party results are due around 9:30 p.m. local time (2:30 p.m. EDT).
Central banks from major economies are ready to take steps to calm financial markets should the outcome of the Greek elections create a market storm.
One likely outcome of the Greek election is the failure of any party to form a coalition government, said Gregory Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which manages $3.5 billon.
"I think that's a fairly high probability outcome," he said. "It's going to leave a lot of heads scratching, and that's probably not going to be good for the market."
A more bearish outcome would be one that presages an unraveling of the euro zone, said Peterson, whose firm starting reducing its exposure to European assets "over a year and a half ago."
The rest of the week is not likely to be any quieter. The Federal Reserve is due to release a policy statement on Wednesday at the end of its two-day meeting, and the steady flow of sovereign debt warnings and downgrades is likely to continue.
In yet another sign of investor nervousness, the CBOE Volatility index, Wall Street's fear gauge, was up for much of Friday, even as stocks rose, although the VIX finally closed lower. Stocks and the VIX typically have an inverse relationship.
Many investors have been trying to prepare for the worst.
"People have been hedging their positions aggressively over the past two weeks heading into this weekend," said Alec Levine, a derivatives strategist at Newedge Group SA in New York.
"No matter what happens (this) week, we will return to a massive game of chicken between the newly elected Greek government, whoever that may be, and the EU, specifically Germany."
THE FED AHEAD
Despite the fears, stocks ended the week on a positive note, marking a second straight week of gains. The benchmark Standard & Poor's index is now up 6.8 percent for 2012, though still well off its highest levels of the year.
Part of what has spurred optimism for stock investors in recent weeks has been the hope that the Fed and other central banks would act to provide more economic stimulus. There has been continuing speculation over whether the Fed will engage in a third round of quantitative easing.
"We do think that expectations of QE3 will drive the market one way or the other," said Omar Aguilar, chief investment officer for equities at Charles Schwab Corp, in San Francisco.
But the fact that the Fed has made no recent changes to policy could mean the economic data policymakers are seeing is "not as bad as everyone thinks," Aguilar said.
Weeks of worries over potential outcomes of the Greek election have prompted a number of central banks to prepare for market problems.
Among them, European Central Bank President Mario Draghi said the ECB was ready to step in and fund any viable euro zone bank that gets in trouble. The Bank of England on Thursday announced a $155 billion (100 billion pound) offer of loans to banks.
Also ahead of the vote, Russell Indexes said certain events in Greece could mean changes in its indexes through implementation of its "financial crisis" rule. Its indexes include the Russell Global Index.
ON RATINGS WATCH
Adding to investor nervousness has been a slew of recent ratings cuts.
Among the most recent, Fitch Ratings on Friday downgraded Egypt's sovereign credit rating deeper into junk status. On Thursday, Egan-Jones cut France's sovereign credit rating.
Many investors see that trend continuing as agencies try to gauge the impact of the euro zone and other problems on the global economy.
"We're probably going to see more of it," Peterson said. (Additional reporting by Doris Frankel; Editing by Leslie Adler and Maureen Bavdek)
No comments:
Post a Comment