Sunday, March 11, 2012

US Markets Rise on Greece Bond Deal and Jobs Data

On Friday, US markets received a lift from Greece avoiding a hard default and the better-than-expect February jobs number. The S&P 500 gained 4.96 points or 0.36% to 1,370.87. The Dow gained 14.08 points or 0.11% to 12,922.02. For the week, the S&P 500 gained 0.1%.

The Greek government announced on Friday that 83% of bond holders have accepted the bond-swap deal. With the activation of the collective action clause (CAC) the percentage of participants increases to 96%. The deal decreases Greece's debt by about $100 billion euros.

In addition, on Friday the U.S. government announced that 227,000 non-farm jobs were added, which was higher than the 210,000 the market expected. The February unemployment rate remained at 8.3%, meeting market's expectations. The market also received a boost from rumours that the US Federal Reserve is considering a new type of QE.

Greece Debt Classified as in Default

By Saturday, the ISDA has ruled that the bond swap deal is considered a default, while Moody's and Fitch have downgraded Greek debt to selective default. This activates about US$3.2 billion in CDS payments, but was largely brushed aside by markets on Friday.

China Decreases Growth Target

On Sunday, China decreased its 2012 GDP growth target from 8% to 7.5%. It was the first time since 2004 that the growth target had been lowered, and the news weighed on markets early in the week.

Looking Ahead to Next Week

The Fed's FOMC will meet on Tuesday, and issue a statement after. Investors will be looking for any sign of a new round of QE or operation twist (OT). Meanwhile, the Thomson Reuters/University of Michigan consumer sentiment data will be released on Friday. The market expects a reading of 76.0 for March.

The bond swap deal and the resulting triggering of CDS payments could have a negative effect for markets next week. In addition, investors with high hopes for a new type of QE will likely be disappointed Tuesday. Even if the Fed gives a hint about conducting a new type of QE, its size will likely be much smaller than QE2. Finally, markets will likely be pushed lower early in the week by China's weak February export numbers, and its largest monthly trade deficit in 22 years.

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