Tags: employment | eurozone | Greece | Swiss

Nothing Is Simple in the Eurozone

Monday, 09 March 2015 08:42 AM Current | Bio | Archive

The much-stronger-than-expected employment report in the U.S. showed employment was seemingly not affected by the weather. Non-farm payrolls increased 295,000 in February after increasing 239,000 in January and 329,000 in December while the unemployment rate fell to 5.5 percent, or down 0.2 percent from the month before.

That was all positive news, which cannot be said of the average hourly earnings. Hourly earnings rose only 0.1 percent on the month after having risen 0.5 percent in January. Of course, it remains to be seen if this practically flat earnings number will remain nothing more than a blip in the bettering path of earnings.

The markets in New York didn't seem too happy with the jobs numbers. Good news appeared to be synonym for bad news, as uncertainty came apparently back into the markets. The key question became, once again, will the Federal Reserve finally start raising its rates in June.

From a long-term investors' standpoint I don't think it matters that much if the Fed starts raising rates in June or in September, because there is no doubt the Fed will start raising rates unless a Black Swan event occurs.

For traders, the day the Fed starts raising rates could result in a jump in volatility that, of course, could have a sizable impact on overall prices. As always we'll have to wait and see.

Today in Europe the European Central Bank (ECB) will cross what to them will be their Rubicon, as it starts its own quantitative easing (QE) program that is in many aspects different from the U.S. QE. The full implementation of what the ECB has the intention to achieve is likely to encounter "sourcing" challenges along the way for the simple reason that the projected amounts that are intended to be bought by the ECB will probably be bigger than the available amounts of sovereign bonds the ECB will legally be allowed to buy.

As a long-term investor, I'd keep this situation on my radar screen because if such a situation should arise, it could spell another round of trouble in the markets.

In the meantime, we have learned that nothing is simple in the eurozone, and that will remain so as long as it exists in its actual from. Yes, if Greece had to leave the eurozone then things would definitively change.

In this context, over the weekend we got a remarkable statement from Luc Coene, the governor of the National Bank of Belgium and ECB Governing Council member, who stated: "When I hear certain declarations of the Greek government, I ask myself what are they still doing in this mechanism?"

We are not used to hearing this kind of negative public statements about Greece from people of Coene's level, although I'm convinced a lot think the same way he does.

By the way, the odds for Greece leaving the eurozone have risen again to 66 percent. Of course, if it were to happen we could expect stormy weather in the markets.

All that said on Sunday, we learned the Swiss National Bank (SNB) has plans to increase its deposit interest rate to a negative 1.5 percent in another attempt to stem a further rise of the Swiss franc, which in clear language means that banks will have to pay the SNB more for holding their money. No, these are not the best of times for banks. Already last month, SNB Chairman Thomas Jordan had warned that the SNB could increase further the already negative deposit interest rates if necessary to try to weaken the Swiss franc.

Please keep in mind that renewed tensions in the eurozone, in case that occurs, means renewed upward pressure on the Swiss franc and, of course, on the U.S. dollar.

About the Author: Hans Parisis
Hans Parisis is a regular contributor to the Financial Intelligence Report. To join the Financial Intelligence Report, click here. Click Here to read more of his articles.

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Renewed tensions in the eurozone, in case that occurs, means renewed upward pressure on the Swiss franc and, of course, on the U.S. dollar.
employment, eurozone, Greece, Swiss
Monday, 09 March 2015 08:42 AM
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