Greece lives to default another day, and crude takes centre stage

7 min read

Anthony Peters, SwissInvest Strategist

So the Greeks have their approval from private bondholders but I do hope we don’t one day find out that they totted up the numbers with the same adding machine that they used to use for calculating their debt and their deficit. The whole process has had something of the siege of Stalingrad and the presence of “volunteers” doesn’t seem to be that different either.

My friend Alex Moffatt of Joseph Palmer & Sons in Melbourne who writes for private clients a long way away from the eurozone said: “While this is simply deferring the problem to a future time it does provide comfort for the present. Readers will recall that Goldman Sachs “assisted” Greece in “restructuring” its finances in 1998 to meet the Maastricht treaty criteria for entry to the euro. That was simply putting off the inevitable to a future time which we have just been through. A diary note for 10 years’ time – beware of Greece.”

I couldn’t have put it better myself although I do suspect that the calm will not last for a full 10 years. The W/I market in exchange bonds is already trading at a discount and with the twin issues of growth and efficiency facing the Hellenes in the same way as it was yesterday, last week, last month and last year, so it will today, tomorrow, next week and so on.

Are we facing John Milton’s “Paradise Lost” or merely John Mortimer’s “Paradise Postponed”?

Clear and present danger removed

Alas, there is a removal of what was a clear and present danger from the markets and they can now choose to either focus on the mess which remains in public finances in other parts of the developed markets or they can hop on the bandwagon which looks at all the signs of more general economic recovery.

After such a long period of doom and gloom, I have no doubt that the latter will come to the fore. I should remind at this point that the vast majority of people who work in the investment industry did not choose that career path because they are naturally bearish and that therefore a half-full glass is more than enough reason to strap on the buying boots.

Brent trading at US$125.54, just over US$1 below its all-time high of US$126.65, is evidently no reason for worry. That high was achieved early last year when copper peaked on the LME at US$9,850/tonne and aluminium at US$2,800/tonne. While oil is flirting with the highs, aluminium is back at US$2,200 and copper at US$8,330 – firm but well off the highs.

Some might argue that oil is driven by geopolitical risks which the base metals aren’t, but what it is that makes it dear is not of the essence but the question as to whether this is a temporary spike or whether the high price is here to stay.

I have repeatedly expressed the view that I see the risk of a military intervention in Iran by either the US or by Israel as fairly limited and I feel the rumblings in South Sudan probably have a greater influence on the spot oil price than some nebulous images of Top Gun heroes Maverick and Ice Man flashing around over the Persian deserts.

My understanding is that within the oil trading community the view is similarly sanguine although the rest of the markets still tend to be all over the shop. Of more relevance remains the news out of China this morning where a raft of releases points towards a gentle slowing of activity there. Both February PPI and CPI were below expectations at flat (exp.0.1%) and 3.2% (exp.3.2%) respectively, retail sales were also sharply below forecast at 14.7% (17.6%) and loan volumes declined. Rising oil prices and a slowing China are not pretty.

Job creation a thing to watch rather than unemployment rate

However, with Greece kind of wrapped up for the while, it is time to face West again with the US payroll report ahead for today. Job creation has of late been in the quarter of a million area – this is needed if a lasting impact is to be made on unemployment – we should not forget that European and American unemployment rates are not to be compared as Americans drop off the register after two years, irrespective of whether they have a job or not.

Thus, many of the victims of the post-2008 fall-out will continue to be rolling off the statistic; hence it is more important to watch job creation figure and to treat the unemployment rate with a pinch of salt.

We also have the US’s January merchandise trade balance reported today. The forecast is for an increase of the deficit to US$49bn. All the excitement over growing retail sales as an indicator of recovery is worth nothing if we find that the rate of imports is rising in equal measure. At the peak of the consumption boom in 2005–08, the monthly deficit was between US$60bn and US$70bn.

At the depth of the recession, this fell to US$30bn/month. The fans of the fact that more than 70% of US GDP is generated by consumption will celebrate a deficit of more than US$50bn as a sign of recovery. I will see it as proof that the economic shock of the past five years has done nothing to rebalance the imbalances which led to the crisis in the first place.

Pays yer money, takes yer choice.

Alas, it is that time of the week again. Al that remains is for me to wish you and yours a happy and peaceful weekend. May all the England fans who travel to the Stade de France for Sunday’s game enjoy the ride home as much as they will have enjoyed the ride there. What a shame that Lionel Messi isn’t a rugby player even though his scores might you have believe it – oops, off that; he’d be playing for the Pumas!