Greece continues to dominate the news
Greek political leaders agree on package
At the 11th hour, and after more discussions among the parties over the course of the week, Greek political party leaders came to an agreement on a revised reform and austerity package that was acceptable to the troika European/International Monetary Fund (IMF) troika. Such a package was a necessary pre-condition before the troika of the Euro-zone governments, the European Central Bank (ECB) and the IMF would agree to the €130 billion bail-out package. The Greek parliament has voted on the package and the majority of Parliamentarians have supported it rather than the alternative, an abyss of a disorderly default.
Earlier in the week, a package was being fashioned amounting to 1.5% of gross domestic product (GDP), including a 20% cut to the minimum wage, some 15,000 public service layoffs and cuts to retirees’ pensions. No change was made apparently to the two month holiday leave loading bonuses, seen as generous in Greece’s current economic circumstances. In a sign of continuing internal political resistance to the reforms within Greece, Deputy Labour Minister Yannis Koutsoukos resigned (along with some other ministers); he noted that “they (the creditors) imposed measures which demolish the structure of labour relations. Developments remain fluid and in a still continuing delicate state within Greece. Meanwhile, Greek Finance Minister Venizelos said agreement has been reached with private bondholders over its debt restructuring (the “haircut”), an integral component of the bail-out package.
ECB and Bank of England (BoE) provide further policy support
The ECB and the BoE met this week for their regular review of monetary policy.
As expected, there was no change to already-low rates but more policy accommodation from both and in different forms. The ECB relaxed its collateral rules for European banks’ access to ECB refinancing ahead of its next long term refinancing operation later this month. This is tipped to be a super-sized Long Term Refinancing Operation, the first of which played some part in alleviating bank re-financing risk and helping to calm market nerves.
The BoE increased its quantitative easing (QE) program by £50 billion to £325 billion amid worrying signs over the past month or so on UK growth, though industrial production and trade data released this past week were better than expected for once.
US economy still making growth progress
US data has been more scarce this past week, but what has been released has reflected continuing growth through year end.
Consumer credit volumes again were well in excess of expectations in December, ($19.3 billion after +20.4 billion; 7.0 billion was forecast), a strong hint that the consumer is coming ack to life and that the banking system is supplying mroe credit. Job Openings data and weekly jobless claims added to the measurably better picture from the non-farm payrolls report when the unemployement rate eased further to 8.3% from 8.5%. At the end of the week, the flash reading on US consumer sentiment in February revealed a pull back in setiment of 72.5 from 75.0, somewhat disappointing.
China’s inflation up-tick scares market
China published its January inflation, trade and lending volume data this past week. Even though that observers are well aware that annual growth in prices, trade and activity are greatly affected by the shifting Lunar New Year, a higher than expected consumer price index (CPI) in January caused a momentary scare that Chinese inflation might be getting out of hand. CPI rose to 4.5% form 4.1%, but it was pushed by by the (usually temporary) increase in food prices ahead of the new year, which are set to then fall back.
January trade numbers have also been likely affected, at least in part. Growth in exports and imports slumped in January, the latter the more so. Yuan lending volumes in January rose somewhat in January but by far less than is expected at the start of the new target year when credit volumes usually accelerate.