Financial Times Newsmine - Financial 6/17

Financial

On Greek debt worries spreading to Spain, June 17

"The cost of Spanish borrowing soared to 11-year highs on Thursday as political turmoil in Greece raised fears of contagion in the eurozone debt crisis and sent investors scurrying for safety. Spanish 10-year bond yields, which move inversely to prices, jumped to 5.74 per cent at one point, above the closing high of 5.63 per cent seen in September 2000."

On market sentiment related to Greece, June 16

"Greek two-year bond yields, which have an inverse relationship with prices, lurched 160 basis points higher, one of the biggest daily moves of the year, to a euro-era record of 28.02 per cent. Greek five-year CDS leapt to a high of 1,700 basis points, or a cost of $1.7m to insure $10m of debt annually over five years. Greek CDS is also pricing a 75 per cent chance of a default by the country over the next five years – it was about 45 per cent at the start of the year."

On Greek debt concerns at French banks, June 16

"Moody’s on Wednesday placed BNP Paribas, Crédit Agricole and Société Générale on review for a possible downgrade, citing the potential for “inconsistency” between the
impact of a Greek default or restructuring and their current rating levels."

Lex on the performance of Europe's commercial property sector, June 15

"So far this year, property is Europe’s best performing sector. The FTSE Eurofirst 300 real estate index has risen 10 per cent in 2011, about 12 per cent ahead of the broader market."

On reduced lending costs for US banks, June 15

"The three-month London interbank offered rate (Libor) was set at a record low of 0.24525 per cent on Tuesday. It has fallen from 0.30 per cent since late March as more cash has entered the financial system, and in turn pushed yields on Treasury bills under 0.10 per cent."

On S&P downgrading Greek debt, June 14

"Greece is now the lowest-rated sovereign in the world, below Ecuador, Jamaica, Pakistan and Grenada. The agency said: 'In our view, Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece’s official creditors, would result in one or more defaults under our criteria.'"

On market and investment performance in Italy, June 14

"During the past 12 months, Italy’s FTSE MIB is up just 3.5 per cent, one of the worst showings in Europe. This follows a similarly poor performance in 2010, when it lost 10 per cent. During the same 12-month period, the FTSE 100 is up 12 per cent, France’s CAC 40 is 9 per cent higher and Germany’s Xetra Dax is up 17 per cent. Even its fellow southern European bourse in Madrid is up 8.5 per cent. At the same time, foreign direct investment into Italy languishes at some of the lowest levels in Europe, having fallen every year bar one since 2001."

Stephen Roach on the US economy, June 16

"The global economy is being hobbled by a new generation of zombies – the economic walking dead. American consumers are in the early stages of an unprecedented
retrenchment. In the 13 quarters since the beginning of 2008, inflation-adjusted annualised growth in consumption has averaged just 0.5 per cent. Never before in the postwar era have US consumers been this weak for this long."
"It will take a long time for American consumers to recover from the ravages of this bubble-induced spending binge. Deleveraging, the paying down of excess debt, has barely begun. Yes, household sector debt came down to 115 per cent of disposable personal income in early 2011. While that is 15 percentage points below the peak ratio of 130 per cent hit in 2007, it remains well above the 75 per cent average of the 1970 to 2000 period."
"A similar pattern is evident on the saving side. The personal saving rate stood at just 4.9 per cent of disposable income in March and April 2011. While that’s up from the rock-bottom 1.2 per cent in mid-2005, it is far short of the nearly 8 per cent norm that prevailed in the last 30 years of the 20th century."

On US inflation, June 16

"Core US consumer prices rose at their fastest rate for five years in May, making it almost impossible for the Federal Reserve to ponder further monetary easing. Excluding volatile food and energy prices, the consumer price index grew by 0.3 per cent from April to May, the most rapid increase since 2006. Compared with a year earlier prices rose by 1.5 per cent."

Lawrence Summers on the US economy, June 13

"Even with the 2008-2009 policy effort that successfully prevented financial collapse, the US is now halfway to a lost economic decade. In the past five years, our economy’s growth rate averaged less than one per cent a year, similar to Japan when its bubble burst. At the same time, the fraction of the population working has fallen from 63.1 per cent to 58.4 per cent, reducing the number of those in jobs by more than 10m."