Soft restructure doesn’t guarantee soft landing
EUR USD (1.4270) Press reports circulating yesterday morning said that Eurogroup Chairman Jean-Claude Juncker was considering the case for a ‘soft restructuring’ of Greece’s debt load. The news was accompanied by a modest and only temporary downturn in the EUR/USD, which was otherwise supported by a buoyant ZEW economic confidence reading that revealed the highest current confidence figure since the survey began in 1991. However the six-month outlook fell to a five-month low, which tends to agree with a recent Bloomberg Global Poll. The recent publication of that quarterly survey shows that medium-term actors expect higher bond yields, a rather bearish stock market, and a rising US dollar index. It seems as if very little of that view is manifesting itself in the market so far.
Apart from mentioning the word ‘restructure’ in combination with Greece, Mr Juncker introduced a new term into the financial lexicon with his mention of debt ‘reprofiling’. The concept seems to be largely understood to mean getting the country’s private creditors to voluntarily accept a lengthening of bond maturities – hence the term ‘soft restructuring’. While the official rhetoric turns, by degrees, to conditions that none dared previously mention, the introduction of a soft restructuring doesn’t necessarily guarantee a soft landing. The euro is at risk for weakness to 1.4155 or to 1.3910, but near-term stability may be achieved beyond 1.4440.
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Deutsche Bank