Global sentiment is down this morning on Greece’s delayed bailout package, poor Chinese FDI numbers, and Moody’s statements regarding potential downgrades for up to 14 financial institutions. The USD is stronger this morning, with equities generally lower across the board; S&P futures are pointing to a lower open.
Greek finance officials are attempting to downplay the delays in aid packages; Greece has an upcoming bond payment due in March that will not be met unless a second round of bailout funds are secured in time. Euro-zone finance ministers meet on Monday
Moody’s has placed 6 financial institutions, including Bank of America, Citigroup, and Goldman Sachs, on review for possible downgrades on the grounds that their current business model will continue losing profitability in the current economic environment. Moody’s is also reviewing JP Morgan Chase, Morgan Stanley, and Royal Bank of Canada for downgrades. There were seven other financial institutions that had their ratings reviews extended, while four more had other negative reviews extended.
Lawmakers claim they have reached a deal to extend payroll-tax cuts to 4.2% from 6.2% through at least the end of the year. The deal would also renew expiring jobless benefits, but cut the maximum number of weeks for which individuals are eligible.
GM reported a record $7.6B profit in 2011 that was dampened by losses in Europe during 4Q last year. Profits rose as sales soared and buyers were willing to pay higher prices for vehicles in North America, while business in China picked up as well.
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After yet another missed deadline for Greece to secure a second aid package, Prime Minister Papademos is set to meet with more European leaders in Athens at 3pm local time. He held an unofficial meeting last night with members from the European Commission, the ECB, and the IMF to finish drafting the terms for the €130B rescue package. According to an article from Bloomberg news, “The situation is getting more problematic for Greece day by day,” Michael Meister, the deputy floor leader and finance spokesman in parliament for Chancellor Angela Merkel’s party, said today in a telephone interview. “A day wasted in failing to tackle Greece’s administrative, budget and competitive problems is a bad day.” Greeks need to reform “not for Brussels, Berlin or the IMF, but for their own sake.” The Greeks face a €14.5B bond payment coming due March 20 that will require international financial aid.
The CBOE Volatility Index has fallen to a recent low of 17.1 on Feb. 3, representing the lowest level for the “fear index” since July. Yesterday, the S&P 500 closed at a 7-month high of 1347, representing a +0.20% move on the day. 10yr Treasuries remain in a trading range, rising +2bps to 1.995%, and the Merrill Lynch BOFA MOVE Index, an indication of treasury volatility, is coming off of its recent lows to around 79.3bps. Credit market indicators such as the LIBOR/OIS spread and 3-month commercial paper versus 3-month t-bills have fallen -10bps and -7bps respectively from their highs at the start of 2012. BlackRock’s CEO Laurence Fink speaking to Bloomberg Television in an interview from Hong Kong told investors to, “Be 100 percent in equities… I don’t have a view that the world is going to fall apart, so you need to take on more risk. You need to overcome all this noise and there are great values in equities.”
Iran’s Foreign Ministry spokesman, Ramin Mehmanparast, dismissed the latest U.S. sanctions against their financial institutions as “psychological warfare” and claimed they would have “no impact” on his country’s resolve to pursue their “rights.” Mr. Obama ordered a block on the Iranian government’s property and interests, its central bank, and all financial institutions on Feb. 6 in an attempt to curb Iran’s nuclear program. Senator McCain has claimed that sanctions are not doing enough to compel Iran to “renounce their path to the acquisition of nuclear weapons.”
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European stocks are heading for their second day of declines as leaders in Athens fail to agree on new austerity measures that are necessary for another round of bailout funding. Greek officials are said to be working on the final draft of the document listing the budget and structural measures required to receive international funding. Fitch released a statement saying that is bailout negotiations were to fail in Greece, severe contagion will likely ensue. “Vacillation within the Greek parliament is once again a source of incredulity amongst euro-zone officials as the former’s interim government breaches a deadline for agreement upon bailout terms,” Neil Mellor, a strategist at Bank of New York Mellon Corp. in London, said in a report. “We watch, we wait.” At 7:45 CST, European stocks were down -0.60% as measured by the Euro Stoxx 50 Index, and S&P 500 futures were down -0.374%. Asian markets closed down moderately lower, led down by Australia’s ASX 200 down -0.51%.
Mark Zandi, chief economist at Moody’s Analytics Inc., will tell lawmakers that failure to extend the payroll-tax cut and emergency unemployment benefits would “deliver a significant blow” to the U.S. economy. Economic growth in the U.S. will be reduced by 0.7 percentage point in 2012 if both programs aren’t extended through year-end, Zandi said in remarks to be delivered to the Joint Economic Committee of Congress today. If the programs are extended, the world’s largest economy will expand by 2.6 percent, he said. ”A self-sustaining economic expansion is close at hand, but only if policy makers do not pull their support from the economy too quickly,” Zandi said in prepared remarks. “Not extending these programs would deliver a significant blow to the still-tentative economy.” The impact on the labor market “will also be meaningful,” costing more 500,000 jobs and raising the unemployment rate by at least +0.3% by year-end, Zandi calculated.
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