Global Macro

This is what happens when the world’s 7th largest economy adopts austerity measures as Delusional Economics warned recently about the core and peripheral nations in the Eurozone.

The economic dramas of Greece have been going for so long now that I suspect that many people don’t realise the significance of the historic event that they witnessed last week with the nation’s default.

As I type this, the Greek PSI (private sector involvement) participation window for Greek law bonds has just closed.

It’s the eve of the Greek PSI bond swap and the pledgers are beginning to roll in: Investors with at least 58 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history.

As you are surely aware by now, the European markets took a bashing overnight with the most of the European headline markets heading down by over 3%, Austria lead the way with 4%.

The reserves from the ECB’s LTRO stage II operation are making their way back into the excess reserve facility at the ECB.

One my major themes for the European periphery over the last few months is that although the ECB’s 3-yr LTRO operations may well impress the broader markets, it will do nothing for the real economies of southern Europe.

My theory for global growth this year is that it will slow from last year and any acceleration will be difficult and halting.

This is a shocking chart, it came up on Twitter last night, so I had to share it: It’s from Scotty Barber at Reuters, showing youth unemployment (under 25 year olds) from before, during and “after” the GFC.

Overnight the ECB offered its next round of its uncapped long term refinancing operations, or 3-year LTRO: As you can see from the chart above, last night’s operation was for €529.53bn, which was larger than the €489.19bn allocated in stage I.

The Japanese February PMI was released today and shows a small fall towards zero growth: After adjusting for seasonal variation, the  Markit/JMMA Purchasing Managers’ Index™  (PMI™) posted 50.5 in February, down slightly from  50.7 in the previous month, signalling a continued,  albeit marginal, improvement in manufacturing  sector business conditions.

As I mentioned yesterday, the results of the third EU-IMF mission to Lisbon to assess Portugal’s implementation of its €78bn bailout were to be release today.

It was the G20 over the weekend in Mexico but it could have easily have been yet another EU summit in Brussels.

With the Greek PSI deal fast approaching the European banks are out declaring their hands: RBS says: The Royal Bank of Scotland has reported its fourth year of losses since the bank’s bailout in 2008.

Last night saw the release of the February Flash PMIs in Europe and, like the Chinese result yesterday, the pulse towards growth that was apparent in January is fading in February. The headline results were weak: Flash Eurozone PMI Composite Output Index at  49.7 (50.4 in January).

Hugh Hendry is Eclectica’s somewhat irreverent, sometimes irate CIO (Chief Investment Officer).

Today I thought I would run through a couple of outstanding areas of concern with the latest Greek bailout.

Please find attached the latest IMF Greek sustainability report that I mentioned earlier today and the Euro Group statement on Greece from today’s summit.

  And so the circus continues into another night.

Everything is going up.

There is definitely something odd happening in Europe.

The poor news from the real economy continued in Europe overnight.

The resolution that refuses to be resolved rolls on.