Greece News Discounted
Following S&P’s decision to lower Greek debt to ‘Selective Default’ rating last night, the ECB announced that it has temporarily suspended the Greek debt for use of collateral. This has been fairly well flagged and is a temporary part of the process – the ECB has previously agreed to continue to except Greek debt as collateral under a ‘Selective Default’ rating. In the meantime, Greek banks can migrate over from ECB-supplied liquidity to liquidity supplied by the Greek central bank through the ELA facility (even though it will cost a lot more). Sentiment remains stable however, a further sign that the market appears well-prepared for Greece-specific sovereign issues. S&P’s downgrade of Greece to ‘selective default’ (from CC) largely stems from Greece’s decision to insert collective action clauses through legislation, though ratings action (and likely CDS triggering up ahead) is considered a part of the overall process and S&P itself said the ratings should be revised back to CCC post-exchange. On a technical level, ISDA is yet to react as it is in the early stages of consideration for the Greek exchange. For now though, with the next LTRO set to anchor risk expectations for the upcoming trading sessions, 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 were robust overnight, while Sweden data improved again. 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 slightly but 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 1.3385-1.3463 and USDJPY 80.01-80.79 overnight.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank