Tags: Greece | Europe | Investors | Exit

Investors Must Brace for Global Backlash From Greek Drama

Friday, 17 April 2015 06:41 AM Current | Bio | Archive

Atlanta Federal Reserve Bank President Dennis Lockhart said Thursday: “… I believe the economy now has sustainable momentum, yet data available for the first quarter of this year have been notably weak (GDP Est. 1 percent in Q1) … decline in the rate of unemployment, and the pace of growth of payroll employment, slowed somewhat … Consumer spending in the first quarter was not as strong as expected …”

We could translate this into chances the Fed will start raising the fed funds rate in June are slim.

Related to this in a broader context, Bank of America Merrill Lynch published its interesting index that measures whether U.S. indicators 'hit or miss' that showed a negative value of -16 (more misses than hits).

This negative score also raises the probability the Fed will remain patient and wait until later this year to start raising rates.

CME futures also continue pointing at October when the first 0.25 percent rise could be expected.

In context of all the above, the just released Fed Beige Book provided some comments that caught my attention: “… Labor markets remained stable or continued to improve modestly. Layoffs related to the decline in oil and gas prices were reported in multiple Districts. Difficulty finding skilled workers was frequently reported. Districts noted modest upward pressure on wages and overall prices…”

Because of that and looking at the latest data on initial jobless claims, and insured rate of unemployment over a longer time span than usually, it could be interesting to investors not to overlook the facts that the initial jobless claims for last week that nudged up to 294,000, but that were still 3.5 percent lower than a year ago while the four-week moving average of claims at 282,750 was at its lowest level since June 2000, which is important
and the mostly not looked at “insured rate of unemployment” remained unchanged at 1.7 percent, which was also at its lowest level since November 2000.

In case the overall employment situation continues to evolve as it does at present, there is no doubt this will result in further wage pressures.

Besides that and looking to Europe at how serious for markets in general a Greek euro area exit (Grexit) could be, Eric Rosengren, president of the Federal Reserve Bank of Boston speaking at the UK, London Think Tank “Chatham House” hit the nail when he warned for the generally underestimated risks of a major dislocation in the markets if a Grexit were to happen. “… I would say to some European analysts who assume that a Greek exit would not be a problem, people thought that Lehman wouldn't be a problem. If you measured the size of Lehman relative to the size of the US economy it was quite small," he said. "I wouldn't be overly confident that just because the Greek economy is small relative to the size of the European economy that something like that wouldn't be a major dislocation. I think everybody should be a little bit concerned.”

At another location, but on the same subject, U.S. Treasury Secretary Jack Lew said no one should imagine they could predict the consequences of a Greek exit: “It would not be a good thing in a world economy just recovering from a deep recession to have that kind of uncertainty introduced.”

Standard & Poor’s rating agency has now also downgraded Greece to ‘CCC+/C’, which reads ‘Substantial risks/Default imminent with little prospect for recovery.’

In the meantime, the German daily Handelsblatt said the ECB has set up a team to help Greece introducing the Drachma, which is the former Greek currency, in case of a Grexit.

I think, investors could do well not being complacent about a possible Grexit.

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In case the overall employment situation continues to evolve as it does at present, there is no doubt this will result in further wage pressures.
Greece, Europe, Investors, Exit
Friday, 17 April 2015 06:41 AM
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