The G20 summit fails to inspire confidence

Keeping to his word Greek Prime Minister Papandreou has announced that he will be stepping down as PM, this was after he hinted that even if he survived his 57th confidence vote he would resign. Greece will now create a unity government that will lead the country until general elections can be held early next year. Rumours are rife about possible replacements for Papandreou and the two most talked about are the current Greek Finance Minister Venizelos and former ECB Vice President Papademos. According to a statement released by the President’s office we could know who his temporary replacement will be before the end of the day in Europe, and some Greek officials have stated that we could have the total composition of the unity government by next week and that elections could be held as soon as February. These developments did lead to small rally in risk at the open, before turning later in the session and forcing the Euro below 1.3800.

The quick moves by Greek officials could be an attempt to secure the third tranche of bail-out funds from the ECB/IMF, these funds are crucial for Greece if it is going to avoid a forced default. Given current levels of funds and debt obligations Greece could default as soon as next month without more bailout cash.

The other big news of the weekend was the G20 summit, yet it proved to be a non-event. The world’s leaders could not come up with any new measures to control the European debt contagion. The bailout fund wasn’t beefed up and the role of the IMF is still waiting to be clarified. The possibility of Eurozone countries pooling their IMF quotas did not eventuate; and nothing new on the Chinese investment front was announced. The sentiment from the meeting was best summed up by German Chancellor Merkel whose comments suggest that she has given up on a speedy recovery to the crisis. However, Greece’s current political situation limited the ability of G20 leaders to come up with a workable solution and should this barrier be removed the path could be clear for more decisive action. Indeed the Canadian finance minister said that another G20 could be held before the end of the year, the next one is scheduled for February 2012.

In other news, we had better than expected figures out of Australia, with the AIG Construction Index coming in at 34.7 for October against 30.0 for September and ANZ Job Advertisements over the same period at -0.7% versus -2.1% respectively. The index figures briefly pushed the Aussie up; however, the gains were soon eroded by a risk-off sentiment and AUDUSD has stayed below 1.0400 for the rest of the session.

Equity markets also struggled to hold onto early gains and are currently trading around -0.5% lower on average throughout Asia.

Going forward investors will likely be focused on the upcoming meeting of Eurozone Finance Ministers and will also have their ears to the ground for news of Papandreou’s replacement.

Source: Forex.com

07.11.2011