Tag Archives: List of Prime Ministers of Greece

Greece Ends Week In Absurdum

In spite of the alleged deal of another bailout package for Greece, the spreads on Greek CDS rose to the absurd level of 2150 basis points, that is 21,5 percentage points above the benchmark – the German bonds. Yesterday Chinese Prime Minister Wen Jiabao arrived in Europe to check on China‘s investments. Dear God!

“Given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems.”

Gavan Nolan

"Reductio ad absurdum" by Rodion Tikhomirov

The Chinese premier Wen Jiabao arrives in Europe Friday, and the main topic of discussion when he meets Europe’s leaders is likely to be Greece. China has been taking a keen interest in Europe’s periphery over the last few years.

The European Council on Foreign Relations estimates that 40% of Chinese investment in the EU is in eastern Europe and the peripherals, excluding Ireland.

  • In Greece the Chinese shipping company Cosco in 2008 signed a 35-year lease on a container port in Piraeus.
  • Jiabao’s deputy Zhang Dejiang visited Greece in 2009 with more offers of investment.

Of course, the reason China is so interested in Greece at the moment is that it is at the heart of the euro zone debt crisis.

China has made several public proclamations of support in favor of Greece and the other peripherals, though it is not clear if it has backed this up by buying large amounts of government bonds.

“Nonetheless, given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems,” credit analyst Gavan Nolan at Markit Credit Research writes in his weekly Market Wrap.

Of course, the reason China is so interested in Greece at the moment is that it is at the heart of the euro zone debt crisis.

China has made several public proclamations of support in favor of Greece and the other peripherals, though it is not clear if it has backed this up by buying large amounts of government bonds.

“Given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems,” Gavan Nolan points out.

So, what will Wen Jiabao find?

Well, the news that Greece and the EU had agreed a new five-year austerity plan last night was trumpeted as a great success.

But according to Markit the market participants are aware that the passage of the austerity bill through the Greek parliament is far from a formality.

Prime minister George Papandreou is in a stronger position after winning the no confidence vote earlier this week.

“But his control over his own party is still tenuous,” Nolan notes.

Another member of PASOK  declared Friday that he would vote against the bill, shrinking the already slim majority.

The vote begins on Tuesday but could last until Thursday.

Greece’s spreads closed the week at an unprecedented  record of 2150 basis points, reflecting the political uncertainty.

“But that is not the only doubt that the CDS markets are grappling with,” Nolan writes.

“The extent and form of private sector participation in the proposed bailout are still not clear. It seems that there will be an “informal and voluntary” rollover of debt similar to the Vienna Initiative.”

Nicholas Sarkozy and other European leaders have said Friday that they have been in discussion with financial institutions about a rollover, and there will be “no difficulties or concerns”, according to Sarkozy.

“But it remains to be seen just how “voluntary” this rollover is, and how they will incentive bondholders to participate,” Nolan comments.

Adding: “The answers to these questions are crucial for the CDS market and will influence spread direction. It should also be remembered that the total net notional outstanding for Greek sovereign CDS is just over EUR5 billion, and has been falling for some time.”

“This is small beer compared to the government bond market.”

“Unfortunately there have been several media reports that have been quoting the misleading gross notional figure; the lessons of the Lehman Brothers credit event auction clearly haven’t been learnt.”

China, on the other hand, has seen a considerable increase in its CDS net notional, particularly in recent months. It is now the 10th largest sovereign in terms of CDS exposure, according to DTCC figures.

The sovereign’s spreads have also widened in recent weeks, though they are nowhere near the levels they reached in the darkest days of the recession.

Premier Jiabao declared victory over inflation in an op-ed article in the Financial Times, Friday.

“Perhaps he is right, but the activity in the CDS market suggests that the Chinese economy faces more than one challenge in the months and years ahead,” Gavan Nolan concludes.

See also:

Markit Economic Research: HSBC Flash China Manufacturing PMI. 23062011.

Markit Economic Research. China PMI Flash Comment. 23062011.

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Dead Greek Cats Can Still Bounce

I suppose you can see it as a positive sign; Greek assets bounce just as good as any stone dead cat in any equity market. At least it makes great opportunities for French President Nicolas Sarkozy‘s beloved speculators.

“Yesterday’s spread tightening reflected the expected outcome, and it was no surprise to see a reversal today.”

Gavan Nolan

The credit markets were pricing in a victory for Greek Prime Minister George Papandreou in the no confidence vote last night, and they were proved correct. Papandreou, who now have earned the nickname “G-Pap”  gained the support for his whole parliamentary party. All according to plan.

“But the Greek PM’s survival didn’t trigger a relief rally; indeed, spreads widened significantly from the open. Yesterday’s spread tightening reflected the expected outcome, and it was no surprise to see a reversal today,” credit analyst Gavan Nolan at Markit Credit Research writes in his Intraday Alert.

See also: Deadline in Athens (Updated)

By the close the Markit iTraxx SovX Western Europe was at 224 basis points, about where it closed on Monday.

Greece was 82 bp’s wider, at 1925.

“The markets are aware that the no confidence vote was the first, and probably the easiest hurdle, for the Greeks to clear. Papandreou’s position is still fragile, though his victory yesterday must have bolstered his standing,” Nolan comments.

The vote on the next round of austerity measures is scheduled for June 28, but might be extended.

“Papandreou will now be more confident of getting the bill through parliament. But before then there is the European Commission summit tomorrow and Friday. This doesn’t now have the importance it did when it was regarded as the deadline for the Greek bailout.”

“However, the central issue discussed will surely be the thorny one of private sector participation, and the headlines coming from the meeting will no doubt have a bearing on spread direction,” Nolan writes.

In the corporate world there was a notable underperformer in the shape of Dutch firm Philips (100 bp’s, +25).

The company’s spreads widened sharply after it issued a profit warning.

“Philips’ margins have been under pressure for some, so the warning wasn’t a huge shock. But the scale of the revisions – EBITA for the lighting division will be 60% down from last year, consumer electronics down 71% – shook the markets,” Nolan explains.

Philips was one of many companies to point towards supply chain disruptions when it issued its forecasts after Q1 earnings.

But this time it blamed weak consumer demand in Europe.

This could well be a factor judging by the data coming from Europe’s major economies.

But it could also be a result of Philips feeling the pressure from low-cost Asian competitors such as Samsung and Panasonic.

“On the plus side Philips has a robust balance sheet and a strong credit profile, with its medical equipment division acting as a bulwark,” Gavan Nolan points out.

European markets will probably take their cue tomorrow from Wall Street’s reaction to the FOMC statement and Ben Bernanke’s press conference, both after the European close today.

“The tone of the statement is expected to be slightly more downbeat but also affirm the transitory nature of the current slowdown. Given that the Fed balance sheet is expected to stop expanding this month Bernanke will no doubt face lots of questions regarding the possibility of QE3,” Nolan concludes.

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Deadline in Athens (Updated)

The result of the voting in the Greek parliament over renewed confidence to Prime Minister George Papandreou is waited any time soon now. Today’s trading session in the credit market insinuate that investors already seem to be pricing in a victory for the beleaguered Greek minister.

“Papandreou has to survive a vote of no confidence, due around midnight tonight.”

Gavan Nolan

The political future of George Papandreou may be in doubt but the markets seem to be pricing in a victory for the beleaguered Greek prime minister, according to Markit Financial Information.

Euro zone finance ministers put the onus back on the Greek political establishment yesterday when they said that they would refrain from disbursing the next tranche of aid until the next round of austerity measures had been passed.

Before that, more obstacle is to be  faced later this month.

“Papandreou has to survive a vote of no confidence, due around midnight tonight. His reshuffle last week, in which he promoted his main rival Evangelos Venizelos to finance minister and deputy PM, seems to have placated his critics within the socialist PASOK party and made his position less precarious,” credit analyst Gavan Nolan writes in Tuesday’s Intraday Alert from Markit.

Pointing out: “Most Greek political analysts expect a slim victory for Papandreou tonight, and that was enough to trigger a bout of short covering.”

The Markit iTraxx SovX Western Europe index was 13 basis points tighter at 211 bp’s, reversing much of the recent widening (it was as wide as 240 last Thursday).

“This had the typical knock-on effect on financials, and that in turn helped the Markit iTraxx Europe rally 4 bp’s to 107.25. We will see whether the rally has legs tomorrow if indeed Papandreou survives the no confidence vote,” Nolan writes.

SABMiller was comfortably the worst performer in the corporate market today after it made a $9.5 billion takeover bid for smaller Australian brewer Foster’s Group.

The offer, representing an 8.2% premium to Foster’s Monday closing price, was rejected by the target company.

“It is entirely possible that this is just the opening gambit from SABMiller, and it could return with an improved offer,” Nolan notes.

Other major brewers could also enter the fray.

That prospect didn’t seem to enamoured the credit markets, where SABMiller’s spreads promptly widened by nearly 20 bp’s to close around 100.

The deal will be financed by existing cash and new debt facilities, and this will have a detrimental effect on the balance sheet.

Sino Forest’s bonds plunged even further today after it was revealed that the company’s largest shareholder, hedge fund Paulson & Co, had sold its entire holding.

It suffered another blow when Fitch cut its rating to BB– from BB+, the agency citing the company’s complex capital structure.

Sino has seen its credit spreads widen sharply since it was targeted by short seller, who highlighted apparent inconsistencies in the company’s reporting.

It’s 6.5% 2017 bond is now trading at 40 – it was trading at 94 at the beginning of this month.

The ISDA Determinations Committee ruled today that a failure to pay credit event had occurred in respect of Irish bank AIB.

“This supersedes the earlier ruling that a restructuring credit event had occurred. A credit event auction for senior and subordinated CDS will be held in due course,” Gavan Nolan concludes.

JUST BREAKING:

REUTERS: The Greek government won a vote of confidence early Wednesday, overcoming a first hurdle in winning new financing to avoid bankruptcy.

More than half the deputies in the 300-strong parliament backed the socialist government of Prime Minister George Papandreou, who reshuffled his cabinet last week to stiffen resolve behind a painful new austerity program.

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