Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news European leaders agreed overnight on a 'Marshall Plan' to try to stop the European sovereign debt crisis spreading to Italy and Spain.
The deal involves using a bailout fund to help extend the terms of loans and lower the interest rates for the PIGS (Portugal, Ireland, Greece and Spain) in an effort to make their high public debts repayable over time. See more here at BBC on the basics of the deal.
However, the deal doesn't address the core weakness at the heart of the Euro zone, which is a lack of a common fiscal policy to match its common monetary policy.
That would require the creation of a central authority to control tax rates and spending across the Eurozone and the issuance of commonly rated and low interest rate bonds.
However the deal does involve Greece having a 'selective default' on its debt, a move the European Central Bank has warned about in the past. It has yet to comment publicly on the deal. See live coverage here at The Guardian.
The hopes for a Euro debt plan helped boost stocks in Europe and the United States overnight and also lifted the Euro. See more here at Reuters on the euro's rise.
See more here at Bloomberg on the 1.2% rise in US stocks.
This move to a 'risk on' stance on global markets boosted The New Zealand dollar to a fresh record high of over 86.4 USc. The New Zealand dollar also rose to 73.8 on the Trade Weighted Index and to 79.9 Australian cents.
Meanwhile, Chinese factory output fell in July for the first time in over a year, the HSBC Purchasing Managers' Index measure shows. China is trying to slow its economy to control inflation and many hope it can achieve a soft landing that allows it to continue growing and keep commodity prices high. See more here at The Australian on the Chinese slowdown.
The Australian and New Zealand economies are now dependent on this 'Goldilocks' outcome (not too hard a landing and not too soft a landing) for the Chinese economy.
Meanwhile, there are conflicting signals coming from the US government about whether it can raise its debt ceiling in time to avoid a default of the world's biggest economy on August 2.
US President Barack Obama and Republican leaders in Congress are reported to be in talks over a new deal, but nothing has been finalised and the clock is ticking. See more here at New York Times on the prospects for a deal.
See more here at Bloomberg on no deal being done.
However, Standard and Poor's has warned there is now a 50/50 chance of it downgrading America's AAA credit rating within the next three months. See more here at Reuters.
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12 Comments
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/86535…
Europe's leaders have grasped the nettle. Faced with a spiralling bond crisis in Italy and Spain and the greatest threat to the EU project for 50 years, they have ripped up their bail-out strategy and taken a large stride towards a "liability union". TheTurnipTaliban 38 minutes ago "Nicolas Sarkozy continued to insist that Greece would pay "all its debts"."The Greeks most certainly will pay all their debts, and much more. Brussells couldn't have more power over Greece than if they had invaded. In fact it's even better than invasion because you can print your way to victory and there are no reconstruction costs. What sort of demoracy will the Greeks have now? A democracy where you don't know who is in charge, where there is no opposition party, and no means of kicking them out. In other words Greece is no longer a democracy.
They are living under occupation and the witnesses are looking away, hoping that the crocodile has eaten his fill.
If the ratings agencies don't treat this as a default and declare 'game over', the treatment needed is going to be a lot worse than a Rennet and some Lucozade. This is very unnerving.Where were the Greeks in the discussions? Why has there been so little news coverage of events in Athens? Why couldn't the Greeks hold a referendum on whether they prefer to default or take a bailout? This is economic warfare. A coup in all but name, and up until today I knew the EU was bad but who would've guessed it was going to end up like this.
Steven....a default is a default is a default...until the meaning of the term is changed and it isn't a default...
Your question should be.." will the rating agencies back down in the face of the threat to have their position as ratings agencies made illegal in europe?"........it's high stakes poker...!
Yep, agree....but I dont know how they can be made "illegal", closely monitored and regulated, yes...in which case of course they in effect become even more useless...
Also while they can be regulated in the EU, if Moodys decided to do the sovereign work in say the USA the EU regs would not apply at least directly. So I guess the National branches would just do national companies. I guess the local companies could be hauled before the EU courts and fined on behalf of what the US parent has done?
I think we saw CNBC? squackbox? an interview/chat with an independant agency where the clients paid for the work/ratings....these ppl were US based, just what could the EU do?
Anyway while the Pollies might dream of this, the reality is I think its an empty threat.....its pretty fundimental to freedom of speech IMHO....but then that doesnt stop a Pollie when its for the "greater good" Next stage logically is neuter the papers and opinins so they cant report "problems"? Pollies would love that I am sure.....
regards
That is what they will do. And as for the "freedom of the press" in the USA....you are joking right!
Obama will simply instruct his pointyheads in the various departments of regime to bash any agency that publishes a credit rating on any european state...where to then...Beijing!...fat chance when Beijing holds euro bonds and fully supports lying corruption in europe.
QED....credit ratings on sovereign bonds are not worth the time taken to read them..even now! Do not invest in such junk and do not put capital into banks that do....stay well clear because this piigs load of shite will splatter far and wide.
“We expect the euro-region recovery to lose momentum over the coming months,” said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. “The German boom is mainly export driven and the global economy is also cooling. The second half will be significantly weaker overall.”
http://globaleconomicanalysis.blogspot.com/
Extrapolate that all the way down here and what do we have...Jewleeya's commune is heading for the crappa...China set to do some serious navel gazing...the USA slipping beneath the planet of debt, boondoogles bullshit and paper trash.......and the euro zone in contraction right bloody now.....
Time for cuppa !
It could see a march though Lambton Quay by the marines, an event that would be charged with symbolism to accompany the as the relationship gets back on to an even keel.
Risky given the unpopularity of their government's deliberate export of inflation throughout the world.
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