Market Outlook for January 30, 2012

The announcement by the Federal Reserve that it plans to keep interest rates low through till at at least 2014 counterbalanced some weaker than expected economic growth figures last week to keep investor sentiment more optimistic. Furthermore, developments over the weekend suggest that a debt swap deal between Greece and its private creditors is nearing as bondholders appear to have accepted calls by European finance ministers to accept lower interest rates. An undisclosed source cited by Bloomberg has said that creditors are willing to accept an average coupon of as low as 3.6% on new 30 year bonds. The EUR peaked at above 1.3235 in trade on Friday.

However, all is not well in Greece. The IMF’s Christine Lagarde has said, “We’re not terribly positive about what has been done (in Greece)”. There are still fundamental differences of opinion between Greece and other members of the Eurozone over how to manage Greek budget decisions. European policy makers and, in particular, the Germans are calling for the creation of a commission with the power to veto budget decisions by Greece. However, the Greeks have rejected such a plan as they see it as being contrary to national sovereignty. As trading resumed in Asia today it was all one way traffic as markets stumbled on speculation that European leaders meeting today will face difficulties in their efforts to resolve the ongoing debt crisis. The EUR has retreated to as low as 1.3110 while the Australian dollar has lost more than a cent to 1.0550 as the USD surges.

Equity markets rose for the fourth consecutive week last week after the announcement by the Fed which was seen as indicative of an another imminent round of quantitative easing. However, the week has not started so well with Asian stocks closing lower as European leaders meet for another summit. The MSCI Asia Pacific lost 0.8%. In Europe, signs of Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair has seen European bourses trade down almost one percent.