Euro Firm Despite Temp Greek Exit Talk,$1.25+ Close
24-Aug-2012
By Vicki Schmelzer
NEW YORK, August 24 (MNI) - Even talk of a temporary Greek exit
from the European Union could not keep the euro down for long, with the
rebounding Friday to close above $1.2500 for the second day in a row.
This is the first weekly close above $1.2500 since July 1.
Other risk assets ebbed and flowed with the euro, with stock and
commodity prices seeing initial pressure and then rallying later.
In early U.S. action, the euro slipped below $1.2500 on a MNI
sources story, quoting senior eurozone officials stating that the German
Finance Ministry is seriously considering a plan where Greece would ask
for a temporary exit until the country's public finances are sorted out.
The notion of Greece leaving the EMU was not new, and had been put
forward in various research notes in recent months as one possible
solution, but the MNI report maintained that the plan was moving up the
totem pole.
"It is another working scenario which is not new but has emerged in
the past month as the most likely outcome for the German finance
ministry," one eurozone official said. "There is a team under [German
Finance Minister] Wolfgang Schaeuble that believes Greece's public
finances will need many years to return to acceptable levels." (See MNI
mainwire at 8:48 a.m. ET for further details).
German Bund yields fell in response to the story, and the euro
followed, but both instruments edged higher later.
The MNI report also offered insight into how Greece may get the
coveted two-year extension to get their fiscal house in order.
The report quoted a second eurozone official, who said that the
two-year deficit-cutting extension being sought by Greece is something
that the EU and IMF "could discuss and decide."
He noted that in Greece's current lending agreement "there is a
clause in paragraph 4 stipulating that if the country is being stricken
by recession, an extension" in the timeframe for deficit cuts "would be
discussed."
The second official said, "if the Greek government delivers on its
promises and performs a series of high profile privatizations that could
bring the necessary revenues, then the extension could be agreed."
The euro, and risk assets in general, are expected to rally if the
Greek extension is allowed.
The euro was trading at $1.2512 in late afternoon action Friday,
after trading in a $1.2481 to $1.2568 range.
The pair topped out at a seven-week high around $1.2590 Thursday,
before closing at $1.2562, the highest close since July 4.
The euro will need to vault its 100-day moving average, in place at
$1.2611 currently, for a shot at revisiting the mid-June highs around
$1.2750.
In other markets, spot gold was trading at $1669.25/oz, in the
middle of $1663.13 to $1673.31 range.
The precious metal posted a three-month plus high of $1674.80
Thursday.
Gold has several hurdles to vault, in the form of old highs around
$1680, $1696, and $1714, before there is scope for a retest of the 2012
high of $1790.30, seen February 29, the day of the European Central
Bank's second three-year LTRO.
In contrast to gold which was buoyed by the prospects of new QE3
from the Federal Reserve, other commodity prices were weighed by jitters
about a China slowdown.
MNI's flash China Business Sentiment survey, released overnight
Friday, showed that the overall conditions index slips to 46.76 in
August from 49.73 in July - see MNI mainwire at 7:12 p.m. ET). HSBC's
flash PMI, released Thursday, also pointed to a softer Chinese economy.
The Reuters-Jefferies CRB index closed down 0.39% at 306.04, after
trading in a 305.98 to 308.09 range. The CRB posted a four-month-plus
high of 309.17 Thursday.
In stocks, the S&P 500 closed up 0.64% at 1411.13, after trading in
a 1398.04 to 1413.46 range. The index topped out at 1426.68 Tuesday, a
new 2012 high and the highest levels seen since May 2008.
Looking ahead, next week will again be about eurozone soundbites
(see European Event Calendar on MNI mainwire at 11:14 a.m. ET) with
interest also in select data sets, such as German IFO data (Monday) and
the U.S. releases of MNI's Chicago report and University of Michigan
Consumer sentiment (Friday)
However, the larger focus will be on what Federal Reserve Chairman
Ben Bernanke says next week at a speech at the Jackson Hole Symposium
and whether his words are interpreted as signalling QE3 or not.
"We do not expect the Chairman to send a strong signal about action
at the September FOMC meeting when he speaks at the 2012 Jackson Hole
Symposium next Friday," said Michael Gapen, senior U.S. economist at
Barclays Capital, in a research note.
"The statement and minutes of the August FOMC meeting had a clear
dovish tone; the Fed said it would monitor incoming data and financial
conditions closely," he said.
Barclays maintained that recent "stronger data flow and improvement
in financial markets will lead the Fed to refrain from initiating QE3 at
its September meeting."
Avery Shenfeld, economist at CIBC World Markets, was skeptical as
well about pending QE3.
"We can't be too certain after the dovish August minutes, but we
still lean towards the Fed waiting until December, when its term
extension buying will be winding up, to announce renewed QE," he said.
"If Bernanke shares that view, then his Jackson Hole speech won't
go any further than what we already heard from the FOMC on the issue of
QE," Shenfeld said. |
