09.03.12 Friday Evening

The quandary of Greece and the constant will they, won’t they default issue seems to have finally found light at what has been a very long and dark tunnel for the Eurozone. As Germany finally ran out of patience with the debt laden country, Greece said Friday morning that 95.7% of bondholders will partake in the debt swap after it triggered an option to force investors into participating as the nation moves closer to the biggest restructure in history.

With the deadline set for Thursday 8th March Greece once again pushed their luck by holding out an extra day until the government announced that bondholders tendered 152 billion euros of Greek-law bonds, a total of 85.8%. In conjunction with these, twenty billion euros of foreign-law debt was also tendered with Greece extending its offer to holders of non-Greek law bonds till March 23rd. These have been viewed as very positive results by both economists and traders which should enable Greece to move forward with its economic reform program. The Euro was seen to strengthen Friday morning by 50 points to 1.3220.

Following this agreement the pressure appears to have been lifted off Greece’s shoulders and immediately placed on its perilous counterpart, Spain. The country’s decision to set a softer budget target for 2012 than originally agreed has resulted in a standoff with Brussels. The issue was opened last week when the Spanish Prime Minister declared that Spain’s new deficit target would be 5.8%, not the 4.4% agreed with the European Commission last year. Spanish services were reported to be in a period of greater contraction this week and hitting the agreed target would cut domestic demand by 4 percentage points, further squeezing the already shrinking economy. For Germany and the ECB these budget agreements are paramount to the future of the Eurozone. As such this predicament has left the Commission open to the problem of how they preserve their credibility of enforcing tighter fiscal rules without causing a similar downward economic spiral as Greece.

With Greece the main focus of attention other news concerning Europe went quietly under the radar. With 4th quarter Euro area GDP confirmed at -0.3% the European Union’s Rehn stated that the Euro Area was entering a mild recession, a situation echoed by the Bank of France who estimates flat GDP change in Q1 for France. The Netherlands reported improved yields and a full take up of their bond auction and stated that they would be willing to increase the size of the Eurozone rescue fund, potentially a perceived sign of strength from the country. Russian elections were concluded with victory for Vladimir Putin who will now serve his 3rd term in office. The result is contested by the League of Voters who cite major irregularities in the way the results were compiled highlighting systematic fraud which greatly distorted the result of how voters expressed their will. Whether the voting was corrupt or not, the former KGB spy will return to the Kremlin 4 years after the end of his last reign for another 6 year term.

In America, ‘Super Tuesday’ took centre stage with 11 states and 400 of the 1144 delegates up for grabs. Mitt Romney came out on top with five state victories, beating the three for Rick Santorum and one for Newt Gingrich. There still does not appear to be one front runner to take up the baton to run for the Republicans and oppose Obama in the approaching elections. On an economic note data was positive with unemployment claims remaining around the 350 thousand levels and manufacturing expanding quicker than expected ahead of the non-farm employment figure this afternoon.

In equities there were results out from a number of different sectors. In the mining sector both Glencore and Petrofac reported solid end of year showings. BP finally came to a $7.5bln settlement with businesses for the Gulf of Mexico disaster but are yet to agree any compensation with the government, however, this prior news was seen as a positive with the stock price opening up Monday 10 points higher. Pace, a set top box maker delivered upbeat FY results with revenue up 11.9% with the share price increasing by 11% during early trading Tuesday. Morrison’s, long seen as the poor relation in the retailers sector reported promising results, a 7% increase in turnover and an increase in the dividend of 11%. The group admit 2012 could be a difficult year but are confident they can make further progress.

Gulf Keystone, which sits on one of the largest oil fields in the Kurdistan region of Iraq, saw its stock price dramatically decline Tuesday because it seems the giant reserve is too big for the company to handle alone. After ExxonMobil signed agreements for six blocks in the region in November GKPs stock soared on the expectation that the oil giant would acquire companies already active in the region. However, sales of the stock intensified this week after it was revealed that the American giant had requested for more time to decide whether to pursue plans in Kurdistan.