Euro zone finance ministers and the International Monetary Fund, IMF, finally reached a deal on Monday to reduce Greece’s debt. After 12 hour of negotiations Greece’s international lenders agreed on measures to reduce Greek debt by 40 billion euro, cutting the debt ratio between debt and GDP (gross domestic product) to 124 percent by 2020. Urgently needed loans to keep the bankrupt economy afloat were simultaneously released. In a significant new pledge ministers committed themselves to lower Greece’s debt below 110 percent by 2022. This is so far the most explicit recognition that some loans have to written off from 2016 when Greece is supposed to reach a primary budget surplus.
After two weeks of haggling, markets reacted with relief on the aid package. Stock markets in Asia continued up. The MSCI index for the south Pacific region outside Japan gained 0,6 percent, and the Euro/USD is trading at its highest level in weeks at 1.2985, marginally up from yesterday. Upon the release of the news from Greece, the euro reached 1.3010. Also the Australian dollar is trading at its highest level in two months versus dollar. USD/JPY was falling in early Asian trade, but has recovered at 82,15. Dow Jones was down and Nasdaq marginally up yesterday waiting for the outcome from Brussels.
Oil prices are steady. New York crude (NYMEX) is USD 88 a barrel. Brent crude is 111,04. Commodity prices are up helped by news on big infrastructural programs in China. Gold keeps around 1750 after reaching 1754 on Friday. Silver is slightly up in the morning trade in Asia at 34,20.
The agreement in Brussels has given the market a breathing spell. Investors focus is now likely to shift back to another major concern hanging over the markets, the looming US fiscal crisis. Republicans asked on Monday president Barack Obama to detail long term spending cuts to help solve the countries fiscal crisis. The Republicans are holding firm against any income tax rate increases for the wealthy that Democrats seek. If a compromise deal on the budget drags out, new focus on the “fiscal cliff” would for sure create nervousness and dampened investors risk appetite.
With big funds winding down their positions ahead of the new year-end, many analysts see it unlikely with major changes in the currency markets. The euro which has gained two percent over the last days is not set for major new gains in the short term. Any further rise in the Euro will likely be countered by selling to cap the euro’s upside. USD/JPY has fallen considerably over the last weeks and no major development is expected before the Japanese elections in mid-December and an eventual new government’s likely monetary easing.
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