Friday the Greece finance minister stated it will not seek an extension of its bailout agreement declaring “we don’t plan to cooperate with that [Troika of the official creditors] committee.” If neither the ECB nor Greek blinks as the ECB has adamantly stated Greece is making unrealistic demands, Greece and its banks will effectively be excluded from the ECB liquidity operations and the Greek government will have no source of funds. Greece will be broke by March.
Greek bonds were further crushed and its equity markets fell further.
Russia has offered aid to Greece but does Russia have the ability given its extremely weak economy and itself may soon be suffering a liquidity crisis, a crisis evidenced by the extremely weak ruble and erratic monetary policy (Russia unexpectedly lowered rates on Friday and is one of the quickest U-turns by central bank in recent decades as Russia just increased rates six weeks ago).
Wow! Talk about irrational developments!
Oil surged about 7% on Friday as some believe production will level off. I will argue the mayhem in northern Iraq along with the ongoing Russian-Ukrainian conflict, the situation with Israel, events in Yemen, Iran, Nigeria and Syria are also starting to impact attitudes.
Equities ended about 1.4% lower even though I believe the GDP data was generally stronger than expected. Yes the headline disappointed, the effects of greater import growth than expected but consumer spending surprised on the upside. I will argue this surprise is the result of falling energy prices and greater jobs that should benefit the companies whose primary market is the US.
Barclays’ Bank reiterated the well discussed statistic that the plunge in oil has transferred about $1.6 trillion from oil producers to oil consumers.
St. Louis Fed President Bullard warned on Friday that US central bankers risk inflating another asset price bubble if they keep interest rates to low as unemployment falls. Bullard stated “you are already talking about a policy that is going to be slow moving over the next few years against an economy that is going to run hot.”
The bubble Bullard stated is “government bonds and other kinds of corporate debt.” Several times I have opined treasuries are more overvalued than the NASDAQ was 15 years ago.
What are the odds that in six months the headlines read “Bonds are plunging and oil is surging because of stellar growth?” Wow! Will this fit into the definition ofirrational development?
I would argue no because there is precedent for such an environment.
What will happen his week, a week that has a plethora of employment and manufacturing statistics.
Last night the foreign markets were mixed. London was up 0.21%, Paris down 0.03% and Frankfurt up 0.32%. Japan was down 0.66% and Hang Seng down 0.09%.
The Dow should open quietly higher following the worst month in the S & P 500 in over a year. As noted earlier, this is a heavy data week that can influence perceptions. The 10-year is off 9/32 to yield 1.67%. Oil is up another $1/barrel.
