STOCK MARKET WATCH -- Wednesday, 18 April 2012

[Demeter]

17. EVIDENTLY, EUROPE'S CRISIS IS OVER

Spain Sells More Bills Than Scheduled as Yields Increase

http://www.bloomberg.com/news/2012-04-17/spain-sells-more-bills-than-planned-as-yields-increase.html

Spain borrowing costs rose at a sale of one-year and 18-month bills for the first time since November as Prime Minister Mariano Rajoy battles to convince investors the country won’t need a bailout. Spain sold 12-month bills at 2.623 percent, up from 1.418 percent at the last auction on March 20, the Bank of Spain said in Madrid today. The Treasury also sold 18-month bills at 3.11 percent, compared with 1.711 percent last month. The total amount sold was more than the 3 billion-euro ($3.9 billion) maximum target set for the auction. Spanish bonds extended gains after the auction with the yield the 10-year benchmark bond falling 16 basis points to 5.91 percent. That yield rose as high as 6.156 percent yesterday, the most since Dec. 1. Spain faces another test of market sentiment on April 19 when it seeks to sell 2.5 billion euros of two-year bonds and its 10-year benchmark security.

“As far as this auction goes, not so bad but not good enough, in my opinion, to provide the market with a sense of optimism going into the bond auction on Thursday,” said Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London.

ECB Help

Demand for the 12-month bills was 2.9 times the amount sold, compared with 2.14 times last month. Demand for the longer maturity notes rose to 3.77 times from 2.93. Demand for Spanish debt has been underpinned by the European Central Bank’s emergency three-year lending to banks at tenders in December and February. Spanish banks’ average net borrowings from the ECB surged almost 50 percent in March to 227.6 billion euros, central bank data showed last week, and data from the Treasury shows Spanish lenders piled up on the nation’s debt in the three months through February.

Spanish officials have called for additional help from the central bank, and Economy Minister Luis de Guindos is due to meet ECB President Mario Draghi in Frankfurt today. Industry Minister Jose Manuel Soria said today that a more “expansionary” policy to inject more liquidity would be “desirable,” after Jaime Garcia-Legaz, the deputy minister for trade, called on April 13 for the ECB to restart bond purchases. The central government faces 11.9 billion euros of bond redemptions in April, 12.7 billion euros in July, and 20.2 billion euros in October, Treasury data show. Spain’s 10-year borrowing costs have jumped more than one percentage point since Rajoy said on March 2 that the nation won’t meet a budget deficit target for this year of 4.4 percent of gross domestic product set by the previous administration and the European Union. Rajoy convinced euro-region peers to relax the goal to 5.3 percent as the euro area’s fourth-largest economy is forecast to contract 1.7 percent in 2012....

MORE ANALYSIS/COMMENT: http://www.reuters.com/article/2012/04/17/markets-bonds-euro-idUSL6E8FHAD620120417



Ireland’s Recovery a ‘Template’ for Europe, World: Templeton

http://www.cnbc.com//id/47069606

Ireland has quietly slipped from the headlines besieging the debt-ridden euro zone, and perhaps for good reason...In a recent interview with Dow Jones Newswires, Irish Deputy Finance Minister Brian Hayes said there are early signs that the country’s crisis could be ending, pointing to data that showed the government taking in more tax revenues this year, that international companies are investing again, and that the country had stopped "hemorrhaging" jobs.

The improving economic environment has instilled confidence in Michael Hasenstab, Co-Director for the International Bond Department of the Franklin Templeton Fixed Income Group, whose Templeton Global Total Return Fund counts Ireland as its fifth-largest investment at 6.2 percent of total holdings...Ireland is a "turnaround story" representing a longer term "three-to-five year trade," Hasenstab told CNBC Asia's 'Squawk Box’ on Tuesday, and added that the country's fiscal resolve combined with a strategy to grow the economy is not just a lesson for the country's neighbors in Europe. "What Ireland is doing is not only a template for what the Euro zone needs to do, but what the U.S. needs to do, what Japan needs to do," said Hasenstab, who personally manages $150 billion worth of fixed income assets. "And that is dealing with both the debt and the growth. So they (Ireland) dealt with the debt, with fiscal austerity, that was tough in the short term but set the stage for the future and they dealt with the growth by remaining competitive."

Not everyone agrees holding Irish bonds is the right strategy. “You have had the juice on the bonds and 5-year debt at roughly 5.5 percent is not overwhelming,” Patrick Perret-Green, head of FX & rates strategy for Asia at Citi, told CNBC.

“The Irish have been the poster boys for austerity in Europe but if the broader environment continues to deteriorate then so too could the debt,” he added. “I would say if you believe in Spain then buying Spanish debt is probably a better trade here, but if you don't then you wouldn't want to own Irish debt either.”

NOW THAT'S A VOTE OF CONFIDENCE!


EU report to show rocky road ahead for Greek recovery

http://www.reuters.com/article/2012/04/17/eu-greece-idUSL6E8FHAOG20120417

Greece must liberalise its labour market and business environment and focus on its public finances and credit flow to companies if it wants to make a positive impact on its economy this year, a draft European Commission document showed. The European Union's executive arm will publish on Wednesday a series of ideas on how the contracting Greek economy can return to growth, which the country badly needs to be able to service its huge debts. In the report that runs to more than 40 pages, however, officials list a litany of problems facing the Greek economy, whose recovery is key for the future of the euro currency.

"Greece suffers from a lack of capacity to implement policy, manage public finances, collect taxes, open markets to competition, make public procurement work efficiently and innovatively, pay suppliers, or offer timely judicial review to its citizens," they write in the document seen by Reuters. Elsewhere they seek to strike an optimistic note..."Greece can build on its many strengths - such as its shipping sector, its tourism potential, its universities and generally well-educated work force as well as its location as a potential logistics and energy hub in South Eastern Europe," said the document obtained by Reuters.

Greece, which remains shut out of the financial markets, will get emergency financing until 2014 from the euro zone and the International Monetary Fund if it implements an agreed reform plan. The Commission draft stressed that before Greece can return to growth, it has to regain control of its public finances. Greek public debt is around 160 percent of gross domestic product (GDP) but with great austerity, a debt restructuring and reforms, Athens is expected to be able to bring that down to below 117 percent by 2020. The Greek government should focus on spending cuts rather than tax hikes to shore up its finances, as this will reduce the negative impact on the economy and leave more domestic and foreign savings available to finance business, the document said. Improving its tax collection is also seen as vital.

CREDIT FLOW

Another priority was restoring the flow of credit to the economy as Greek banks curbed lending because of a large outflow of deposits, the paper said. To help change that, Greek banks are to be recapitalised with money from EU loans by September. Small and medium-sized enterprises (SMEs) are key drivers for economic growth and employment because they represent 99.9 percent of all companies in Greece, with micro-enterprises representing 96.5 percent. Yet six out of 10 firms saw a deterioration in their earnings in 2011 compared to 2010, and 150,000 jobs were lost there last year. A Greek survey showed that 60,000 such firms would close and a further 240,000 jobs would be lost this year....Finally, to help boost growth, Greece should liberalise business, now entangled in bureaucracy and corruption, as reforms in the production and service sectors could add up to 13.5 percent to Greek GDP over the long-term. The Commission noted that Greek nominal labour costs in the business economy should fall 15 percent over the next three years to restore its cost-competitiveness. Greek exports could get a quick boost by cutting red tape, which prolongs the average time needed for export clearance to 20 days on average from the EU average of 10 days. "This is estimated to result in total export value which is around 10 percent less than it would otherwise be," the Commission said. Bidders for Greek public contracts wait nearly 1 year, twice as long as the EU average, for contracts to be awarded. Procedures are inefficient and resource-consuming, and each triggered on average two appeals, it said. "This situation penalises suppliers to the public sector and increases costs. It prevents the acquisition of supplies and services needed to perform public services, and prevents the completion of works funded by the EU structural funds," the paper said. More gains could come from deregulating sheltered professions and modernising the electricity and gas sector, which is dominated by a few inefficient state-owned quasi-monopolies. Greece should also remove administrative barriers and improve poor management in its transport sector, which is key to making better use of tourism. Athens also needs to thoroughly overhaul its public administration. "Complexity and opacity at all levels create opportunities for corruption that undermine citizens' confidence in the system and corrode its effectiveness," it said. The Commission said the European Union was ready to help Greece with money and know-how, noting the total financial assistance to Athens of about 380 billion euros, or 177 percent of Greek GDP, was unprecedented.

SO, THE BEATINGS WILL CONTINUE...BECAUSE UNLIKE SPAIN AND IRELAND, GREECE WAS A RELATIVELY CORPORATION-FREE PLACE....