The Greek leftist government appears to be headed towards disagreement as the former vowed to fulfill promises of overturning years of cuts in public-spending regardless of warnings from Germany and other Euro nations that this can plunge the region into crisis.
The EU is respecting the choice of the Greek people but it has no plans of loosening bailout terms for the country.
Many Greeks blame this for the considerable depression of national economy.
According to European economic leaders, this step will only encourage other bailout beneficiaries which include Portugal and Ireland to ask for similar compromise. It can further wear down the EU’s credibility.
They also fear that the Syriza party’s victory can boost other populist movements in different parts of Europe.
Syriza is committed to adopt a strong anti-austerity line of attack and form an alliance with Independent Greeks which is a minor right-wing party. The coalition partners oppose euro region policies that call for fiscal stringency and sacrifice to obtain financing.
Greece does not have enough time to settle the deadlock because the bailout program worth €240 billion concludes by the end of next month.
Greece is asked to put in place additional reforms demanded by the European Commission, the European Central Bank and International Monetary Fund to qualify for the last €7.2 billion installment and pay the ECB in terms of bond redemption.
Dispute over Greece concentrates on whether it deserves more flexibility than it has been given in the past. Creditors brought down interest rates for their loans below market rates while interest charges for numerous loans were put off until 2022.
The interest burden is equivalent to roughly four percent of its economic output last year.
Last week was probably one of the worst for the euro and the green bucks after plunging nearly a total of 400 pips on the massive decision of QE. The tandem seems restless as it awaits the result of the Greek elections and bracing number of inflation among coming happening. The question is that this: Will it get to the bottom and cease falling after 6 weeks of continue sliding? Here is an insight of the pair for the week.
A gigantic €60 billion per month of QE program was delivered by Dragni that is expected to last until September of 2016; an overall total of €1 trillion. The amount was beyond expectations that partly came from leaks. The program could probably be extended until the termination if the expected inflation will not come up in a viable manner. As purchasing will be done mostly by the national central banks; the relative bid for the euro will be kept for a short while. There is a probability that it will decline to a new low of 1.1113, or nearly 0.90 on USD/EUR. Aside from this, the economic sentiment of German ZEW was beyond expectations while the manufacturing of PMI missed. Data for U.S. was once again disappointing although growth continues.
The US dollar was lower versus the Japanese yen as US equities fortified demand for the Asian currency.
USD and JPY pair was behind 0.61 percent to 117.78 during late trading.
US stocks declined due to flexible corporate earnings that led to concerns over possible consequences of the stronger US exchange note.
Meanwhile, the EUR and JPY pair reached lows of 130.95 before returning to 132.00. The currency pair closed with losses of 2.91 percent.
The Bank of Japan did not implement easing measures despite reducing inflation projections for 2015 which boosted expectations for additional stimulus.
Meanwhile, it is expected that market investors will scrutinize figures on 4th quarter growth in the US.
The Japanese Central Bank will circulate the minutes of the bank’s most recent policy meeting which include essential outlook on economic conditions coming from the bank’s point of view.
Japan is expected to divulge data regarding trade balance as well.
On the other hand, the US will circulate data about long-lasting goods orders and reports from the private sector on consumer buoyancy as well as new real property sales.
The Federal Reserve will reportedly disclose benchmark interest rates and the corresponding statement that delineates economic conditions and factors shaping decisions about monetary guidelines.
The US will most likely finish the week with statistics on the last quarter growth and consumer outlook.
Mark Carney, Bank of England Governor says that relaxed fiscal policy can lead to unwarranted risk-taking in monetary markets.
He added continuous monetary incentives for six years can be reasonable for economic reasons. However, there is disadvantage if it burns markets.
During the World Economic Forum panel meet yesterday at Davos (Switzerland), Carney emphasized that risks abound in an atmosphere of minimal interest rates as well as QE for a particular duration.
Policy makers need to stay away from imprudent risks.
Central banks usually implement the lowest rates along with asset purchases to move economies away from slump and pave the way for resurgence.
MSCI World Index has increased by nearly 50 percent since 2010 while bond yields decreased worldwide.
Carney believes that policy makers must aim for financial permanence. On the other hand, investors must understand central banks will not save markets. They should be vigilant regarding false impression of liquidity.
Meanwhile, Bank of Japan Governor Haruhiko Kuroda asserted that the taking on of quantitative easing by the European Central Bank may be helpful than expectations of some market investors.
Distrust of QE could be over-stated, Kuroda added.
Carney is optimistic in a guarded manner regarding the global outlook citing the economic revitalization of the United States. Yet, there is a discrepancy in the Fed’s course towards monetary policy and expectations of world markets.
Kuroda is determined to work for the needed structural reforms promptly in Japan.
The new king of Saudi Arabia, Salman Bin Abdulaziz Al Saud, assumed the throne which led to speculations that there will be no changes in policies regarding crude production and exports. As a result, oil dropped to the lowest in nearly six years.
Benchmark for oil futures in the US slipped 1.6 percent that reversed preliminary gains of as high as 3.1 percent. The new king announced that he will continue his predecessor’s guiding principles. Saudi Arabia will not reduce production to increase prices, according to Saudi Prince Alwaleed Bin Talal.
Reports said US stocks had the highest increase since 2001.
West Texas Intermediate oil for settlement in March delivery declined 72 cents and closed at $45.59 per barrel at the New York Mercantile Exchange. Futures went down 6.4 percent while volume was roughly 13 percent more than the 100-day median.
Meanwhile, Brent oil moved forward 27 cents (0.6 percent) to $48.79 per barrel in Europe (ICE Futures exchange) after surging to $49.80. The volume was two percent above the average. Brent closed at a premium of $3.20 to WTI as against $1.04 last January 16.
There is a mild reaction in international markets.
The Saudi prince said crude will not go back to $100 per barrel and world supply will be shaped by the price collapse.
The Kingdom may not be pleased with prices. Nonetheless, this issue has to be dealt with rationally.
Saudi Arabia’s position in maintaining output levels will not be modified, according to sources.
Last Thursday, the State Bank of Pakistan (SBP) announced that in Karachi, the entire county’s liquid foreign reserves of the dollars remains at 15.01908 billion.
The statement stated that the State Bank’s foreign reserves as of January 16 amounted to $10.33005 billion while the net foreign reserves found in the
other banks totaled at $4.68903 billion.
On the week ending January 16, the liquid foreign exchange reserves of SBP were decreased from $34 million to $10.331 billion as compared to $10.365 billion of last week.
Within the period, payments of $57 billion were made by SBP of their external servicing debt account; as well as other official payments. During the week, there was no major inflow recorded under consideration.
Last Thursday, bulls relaxed as the local bourse trading stayed under selling pressure due to financial offloading of expected discount rate of 100 basis points system (bps) snipped by central bank.
In the Stock Exchange of Karachi (KSE), the 100 index lost 182.53 points as it closed at 34146.97 points versus the 34329.50 points of the previous session. The 30-index of KSE declined by108.65 points and culminated at 22206.25 points against 22314.90 points of last closing.
Jawwad Aboobakar who is analyst for the Elixir Securities said that the equities of Pakistan closed negative as it broke a six day green closing streak on a day’s healthy turnover that tested nerves.
He added that stocks have positive opening although selling of the institution dragged index to red with the financial side bearing the brunt as investor’s firm viewed a cut of 100bps cut in discount rate over the weekend.
The economy of New Zealand is expected to develop further notwithstanding waning oil prices and the strong Kiwi dollar.
Prime Minister John Key sees the economy as expanding even as the export industry is affected by the oil crisis.
The country’s currency scaled up to more than eight percent against the single currency during the last three months mainly because of the QE concerns.
The kiwi rallied to a record high versus the euro after the Swiss National Bank unveiled its revelation to abandon the minimum exchange rate. Officials predict that economic growth will go up to 3.25 percent annually from 201 to 2018.
According to Statistics New Zealand, the economy grew faster than expectations from July to September of 2014 while GDP increased by one percent in the same period.
One of the keys was sustained economic activity in the United States which contributed to the upbeat mode in New Zealand. The Prime Minister set aside concerns of economic deceleration in Asia especially its major trading partner, China.
The growth of New Zealand is being stimulated by national industries such as dairy (the nation’s major product for export) as well as exploration of oil and gas. Aside from milk, NZ also exports meat, wood and oil.
The economic outlook of HSBC for New Zealand is still upbeat since it is expected to boom this year.
Germany did not hide its disappointment with the ECB’s agenda to pump an abundance of cash into the distressed euro area.
The Germans sense that they will be forced to subsidize measures taking away incentives from cash-strapped EU members to accomplish reforms stipulated by German Chancellor Angela Merkel.
She cautioned that the ECB’s agenda must not in any way eclipse the real need for structural changes.
There is much concern on the plan of the central bank to take billions of debt from struggling euro states.
The bond buying spree is deemed by many as a very costly method that brings the entire euro system deeper into unfamiliar terrain.
Politicians and leaders in business supporting Merkel’s moderate bloc echoed their sentiments that the actions of ECB head Mario Draghi do not tackle root causes of euro zone torpidity.
German officials contend that fiscal policies are not replacement for formative modifications that national governments should embark on.
The ECB cannot generate recovery single handedly. The euro zone needs higher growth, according to observers.
Some critics of quantitative easing describe this scheme as unlawful state financing through printing of currency. It is said to contravene European accords.
The ECB bond-buying criminally shares liability for debts of other nations.
The group called Alternative for Germany preferred to call it as a reckless move of the EU central bank which will deal out bonds using the back door. The organization asserts that problematic countries like Greece must abandon the bloc.