Three of Greece’s four major Banks yesterday went cap in hand to the Greek central bank begging for Emergency Liquidity Assistance (ELA). Access to ELA must be approved by the ECB, and was approved on January the 21st for a period of two weeks. Sources have suggested that these three banks have borrowed €2bn, these banks are unknown as yet however we can have a pretty good guess and we have a 75% chance of getting them all right. As predicted in yesterday’s report depositors have already started making substantial withdrawals.
The Greek central bank anticipated this occurrence some time ago with tightening liquidity conditions ahead of the Greek election, exacerbated by foreign banks closing off interbank repo lines to Greece, there are few other places for Greece to go, despite the fact that borrowing from the ELA is substantially more expensive than going directly to the ECB.
While this emergency lifeline is the responsibility of the national central bank it can be vetoed if a sufficient majority on the ECB governing council objects, and various German banks are already quieting up to lodge their displeasure. It is very likely that the two week window will be entirely ignored provided the Greek government is still engaged in negotiations on a bailout programme with the Eurozone. Germany’s Bundesbank have pointed out a rather concerning loop hole however, ELA funding could be used to buy treasury bills, to cover the government’s funding needs, the banks could then use that short term debt as collateral for further central bank liquidity. There is a €15bn cap on the banks holdings of such debt but Greece has asked the EU to increase this cap by €10bn and late last night the additional amount was approved. Bundesbank wants this ELA money earmarked for banks in the Greek aid programme to be used. Certainly if recent history is anything to go by I would not want to be holding my cash in any of the major four.
US and European stocks both rallied yesterday, on the European side in part due to renewed hope that a resolution to the creditor and government standoff. Mr Varoufakis has been on the campaign trail, yesterday back in Athens working on the “road plan” to lessen the burden of his countries hefty deficit. Well he is definitely doing something right as the markets lapped it up, Athens stock index advanced more than 11% adding to Mondays 4.6%, the CAC, FTSE MIB, IBEX and DAX all put in a solid performance as well. US stocks boosted by the Eurozone’s renewed confidence in Greece also benefitted from the higher oil prices we have seen this week, 3% yesterday, lifting energy shares substantially, with the DJ up 1% and S&P500 up 0.6%.
Mixed Kiwi Signals
Down in the Kiwi land, the RBNZ government Wheeler announced that interest rates would be kept on hold for some time to come. The Reserve bank of New Zealand could cut rates if drought hits the economy or time get tougher overseas but for now they are staying where they are. There are various concerns at play, with house price inflation getting out of control and the “unjustified and unsustainable” strength of the NZ Dollar, the path to recovery is still kinda shabby.
On the other hand, the employment change component showed a 1.2% quarterly increase in hiring for the last three months of 2014, stronger than the projected 0.8% gain. To top it off, the previous quarter’s reading was revised higher to show a 0.9% rise in employment from the initially reported 0.8% uptick.
A quick review of previous releases shows that the employment change figure has been coming in stronger than expected for five out of the last six releases, indicating a positive trend in hiring.
This simply paints a mixed picture for Mr. Kiwi but so far he has been moving up on the forex dance floor against Ms. USA.
Elsewhere in the World…
China and Japan last night released PMI data all of which was broadly speaking poor both over the 50 mark however. China’s figures were at a six month low and more stimulus is expected to bolster the ailing economy. “given continued contraction of the manufacturing sector, we believe more easing measures are warranted to support growth in the coming months.” No wonder the Japanese yen is moving sideways on the forex dance floor.
Today’s NEw York session continues on with Canadian and US PMI, good chance for news trading USD/CAD.