Market jitters of Greek bond swap continue as markets look to Non Farm Payroll figures on Friday

Tom Tong07/Mar/2012Currency Updates

GBP

We saw Sterling fall to an 11 day low yesterday against the greenback after investors sought safety once again on the back of weak UK data. Retail sales and a surprising fall in house prices saw investors move towards safe haven markets once again as the pound is perceived to be vulnerable to the problems in Greece. This reversal of risk appetite goes against all of cables attempts in the past few days to surpass the $1.60 level. Stop loss orders exaggerated this move further and with no surprises expected in the Bank of England’s Interest decision on Thursday all eyes will be on non-farm payrolls in the US on Friday.

Vince Cable confirmed that the coalition government is in talks regarding the 50p tax rate ahead of the Budget, however this may be replaced with a “taxation of wealth”. The devil may be in the detail with this and no doubt it is going to be a very complex set of negotiations for the two parties. The FTSE saw its biggest fall in 3 months as global growth fears and Greek debt problems continue to dominate the markets. A drop in China’s growth forecasts and poor figures in other emerging markets exacerbated this decline.

EUR

Greek private creditors will decide on Thursday if they are to move forward with the bond swap that is necessary to conform to the restructuring deal to help Greece meet their debt repayment due on March 20. Investors in Greek debt really have their backs against the wall on this as if they agree to participate in the swap then they stand to lose three quarters the value of their debt.

If however they do not participate and so force Greece to default this will cause contagion as the usual suspects Italy and Spain will become dependent on outside help as the Euro zone becomes exposed to more than 1 trillion Euro’s of liabilities.

European shares followed the FTSE trend and also closed at a one month low all for the same reasons.We see the ECB interest rate decision released on Thursday but like the BoE we expect no surprises there and should see them maintain their 1% rate.

USD

The news dominating the US markets is the race for the White House as we saw Mitt Romney see a narrow win in Ohio on Super Tuesday yesterday. President Obama has also been campaigning hard this week as Ohio has proved to be a key state with the eventual party winners being voted in all but twice in the past hundred years by the US state.

The campaigns now turn to the South which will really test Romney who has previously struggled to gain support amongst these traditionally Christian and conservative Republican states. In currency markets, as we’ve already mentioned the dollar made significant gains against most majors as investors sought a flight to safety given the uncertainty in Greece. Key market news to focus on with regards to the greenback this week include Non-Farm payroll on Friday and of course Thursday when the Greek investors reach a final decision on the bond swap deal.

US stocks followed the way of the FTSE and European shares after the DOW saw its worst day in three months dropping 200 points again highlighting fears that the China’s fall in growth expectations is going to hit global growth and that Greece and the Euro zone is still far from out of the woods. Brazil’s GDP also raised concerns as it expanded by just 2.7%. It has been the expected growth in emerging markets that has been seen as the main catalyst for equity gains.

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Written by Tom Tong

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