Key news- ISDA has given its verdict on the Greek debt swap and has determined it is a credit event and CDS contracts will be triggered. The IMF will contribute EUR18bn to the second Greek bailout programme.
- The positive US employment report released on Friday sent stocks and US bond yields higher while EUR/USD weakened. EUR/USD is trading below 1.31 this morning.
- Focus today will be on the implementation of the Greek debt swap and the Eurogroup meeting in the afternoon
Markets overnight
On Friday night ISDA gave its verdict on the debt swap in Greece and determined that it is a credit event, implying that CDS contracts will be triggered. The decision made by ISDA’s determinations committee was unanimous. This followed the Greek authorities’ resolution on Friday to invoke collective action clauses (CACs). An auction to set the size of the payouts has been scheduled for 19 March. The net notional on the outstanding CDS contracts – the net payout – amounts to about USD3bn, according to the Depository Trust & Clearing Corp (DTCC).
According to Bloomberg the IMF will contribute EUR18bn to the second Greek bailout programme totalling EUR130bn. This constitutes 14% – considerably less than the 27% (EUR30bn) the IMF contributed to the first rescue package. The IMF is expected to announce its contribution following a board meeting on Thursday.
The employment report released on Friday was overall positive showing a gain in non-farm payrolls of 227K in February and net revisions to January and December added another 61K. The unemployment rate remained unchanged at 8.3% despite a major gain in household employment. Details showed another good month for manufacturing employment. One weak spot is the continued modest gain in hourly earnings, which is suppressing overall income growth.
The positive sentiment continued on Friday in the US session. The S&P500 ended the trade up 0.4%. US 10-year bond yields climbed on the strong employment report and ended the session in 2.02%. In FX markets EUR/USD fell more than a figure following the US data release and ended Friday at 1.311. This morning the cross is trading at 1.308.
In Asia stock indices are trading with no clear direction this morning. Nikkei is up by 0.1% following the release of better-than-expected machinery orders. Hang Seng is down by 0.3% partly due to slower-than-forecast Chinese export figures released on Friday.
Global Daily
Focus today: The Greek debt swap seems to be proceeding according to the Greek authorities’ plan. The new bonds will start trading today. At tonight’s Eurogroup meeting, the next steps in the Greek plan including the next disbursements are likely be discussed.
The size of the firewalls is also likely to be debated. Also the financial tax will be discussed at the following ECOFIN meeting. There are no important data releases today.
The ECB’s release of SMP purchases is no longer in focus as the programme in practice has been paused after LTRO II was implemented. Investors are likely to start looking ahead to Tuesday’s FOMC meeting where the growth language could be tweaked slightly in a positive direction.
Fixed income markets: With a thin calendar on the data side and no bond issuance, the rate market is likely to spend the day digesting last week’s events. With a done deal on the Greek PSI and another very healthy US employment report, the backdrop should be alright from a market point of view. That said, the most obvious seems to be that the current range trading in the long end of the rate markets will continue today. US 10-year rates did not manage to break the levels around 2.04-2.06% last Friday and hence the market might have a reason to send yields lower before attempting another sell-off.
FX markets: The dollar is getting support from strong US numbers currently, as the possibility of further monetary stimuli to the US economy is reduced. In particular, the market has turned its focus on USD/JPY and data released on Friday showed that speculative positions against the JPY are building. The so-called net short against the dollar rose to 19,358 contracts for the week ended 6 March compared with 1,203 contracts in the previous week. USD/JPY is above the 82 level for the first time since April last year. Today, the market will continue to watch for comments on Greece as the eurozone ministers gather in Brussels to sign the EUR130bn rescue package. On the one hand, it might weigh on the euro, but on the other the stronger US numbers are expected to support risk appetite and the euro.
Keep also a close eye on the Scandies. Norges Bank is expected to keep rates unchanged on Wednesday and low Swedish inflation is expected tomorrow. The releases should underline the divergent monetary policy between Norway and Sweden. Hence, renewed upside is seen for NOK/SEK this week.
Scandi Daily
Denmark: We expect Danish CPI for February to show a small decline in inflation to 2.6% y/y from 2.8% y/y in January on the back of a lower-than-usual increase in rents. Danish inflation should soon start to attract more market attention with the expected issuance of linkers in H1 12.