Euro Off Low But Greece Uncertainties Limit Recovery

Risk aversion continues to dominate as Asian equities are broadly in red following the over 200 pts fall in DOW overnight, which was the worst day in three months. Major currencies are mildly off lows against dollar but remains pressured. Situation is Greece is weighing on sentiments and all eyes remains on the development in the participation in the PSI debt swap deal. It's reported that four Greek pension fund refused to join the bond exchange arrangement that would involve 53.5% in face value, longer repayment schedule and lower rates that would mean around 75% of the overall values. The four pensions fund were under pressure from unions on worry that the debt write down would affect the viability of the funds. These four pension funds fold around EUR 2b of Greek debt.

So far, there situation, Greek banks, including the largest six banks, would join. Italy's largest bank UniCredit would join and all other IIF steering committee would joint too. That contributes to around 30% of the EUR 206b bonds in circulation. Most Greek pension funds except four would join. Greece's Public Debt Management Agency stepped up its warning to other investors yesterday and said that if there is insufficient support for the PSI program, "the official sector will not finance Greece's economic program and Greece will need to restructure its debt ... on different terms that will not include co-financing, the delivery of European Financial Stability Fund notes, GDP-linked securities or the submission to English law."

Greek finance minister remained optimistic that the participation rate would be above 90%. There will be much uncertainties if it's between 75% and 90%, which is the most likely scenario. In that case, Greece will consult with the official creditors, the EUR and IMF on whether to fill the gap using CACs. Suggested readings, Possible Outcomes Of The Greek Debt Swap.

In other news, Australia GDP rose 0.4% qoq in Q4, missed expectation of 0.7%, Q3's figure was also revised down from 1.0% to 0.8%. RBA is expecting about trend growth but left the options open for rate cut should downside risks materializes. Today's data should prompt some revision in RBA's growth projections. Nonetheless, currently market are seeing less than 40% chance of a rate cut in April.

Looking ahead, US job data will be a main focus today. ADP employment expected to show 205k expansion in the private job market in February. Other data to be watched include Swiss unemployment, German factory orders, Canada building permits.