Greece In ‘Selective Default’
Late during the US session S&P downgraded Greece to ‘selective default’, from CC. The agency noted that the CAC insertion has led to the debt plan to be a distressed debt restructuring, though the ratings should be revised back to CCC post-exchange. There was no market impact as this was expected, and ISDA is yet to react as it is in the early stages of consideration for the Greek exchange. Otherwise there was precious news to move markets throughout the US session on Monday as Germany’s parliament approved the bailout for Greece without much incident, though there is a sense from Germany and the ECB that at-risk countries and the market at-large should not expect any more favours. German Finance Minister Schaeuble seemed resigned to Greek needs for more aid in the years to come, but the political dynamics within German may point in a different direction, judging by how today’s vote materialised. For now though, with the next LTRO set to anchor risk expectations for the next 48 hours, there is a window of opportunity to find relative value within G10 simply based on economic indicators – an art which seems to have been long forgotten in the shadow of the global financial crisis and the Eurozone debt crisis. Retail sales figures in Japan, Sweden, consumer confidence in the Eurozone and the US will be able to provide a clear snapshot as how normal households are viewing the current economic climate, and policymakers may yet realise that amid all the talk of firewalls and financial stability, their key constituents – households and business, are still struggling, though to different degrees in different economies. Meanwhile, oil prices have taken a breather: the Brent Active Contract has dipped more than $2/bbl on Monday yet remains at a relatively elevated level above $123/bbl. While we do not expect the recent gains to be damaging for global growth yet, it does create problems in a quantitative policy environment as policymakers will struggle to justify balance-sheet led stimulus for fear of fuelling inflation expectations at a critical time. Fed Chairman Bernanke may need to tackle these concerns head on later this week as he testifies before Congress, while the Eurozone is set to deliver another liquidity boost. Ahead on Tuesday, durable goods orders are also out, SNB’s Jordan is due to speak. EURUSD traded 1.3367-1.3478 and USDJPY 80.15-81.61 through Monday.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank