SCOREBOARD: Greek carnage

SCOREBOARD

• Greek carnage

  Apr 28

• Finely balanced RBA

  Apr 27

• Poor PIIGS

  Apr 23

• Fair forecasts?

  Apr 22

• Sentimental lift

  Apr 21

TOP News

• Goldman chief faces attack over ethics

   10:31 AM

• IMF in talks on raising Greece aid stake

   8:14 AM

• S&P slashes Greek debt to junk status

   4:53 AM

• Banks to post strong earnings on lower bad debts

   9:47 AM

• Bernanke says prompt action needed on deficit

   2:15 AM

The Spectators

• SCOREBOARD: Greek carnage

• A crescendo of fear over Greece

• THE DISTILLERY: Trash and Treasurer

• Kohler: And what is 'good', Goldman Sachs?

• Gottliebsen: The banks must not let Greece fall

It was absolute carnage overnight and to prove it, the Vix index spiked over 30 per cent. It all centres on an S&P downgrade on Greece to BB+ from BBB+ (long-term debt) and B for short term – this stuff is now officially junk, and junk with a negative outlook.

Portugal didn’t escape getting knocked down to A- from A+. The impact was immediate and 2yr Greek bonds now give you 15.4 per cent for your efforts which is about 220bps higher than yesterday and I think (please correct me) the highest yield on offer, anywhere – certainly one of the highest.

Portuguese 2yrs, offering just a fraction of the Greek yield (4.9 per cent), are nonetheless 100bps higher from yesterdays’ close. This is becoming a self-fulfilling prophecy and unless the Europeans can stand united, take some tough measures to bailout Greece and put this issue to rest once and for all, there is just no hope for them.

So, think safe-haven flows and you’ve got the gist of last night’s action. In particular treasuries were feeling the love. Volumes were heavy, some 83 per cent higher than average through Brokertec (which makes for the heaviest day since mid September 2008) and ranges were comparatively wide. 2s and 5s were most active but then again there was the $44bn 2yr auction to contend with.

Surprisingly, bidding interest was about average at the auction with cover at 3.03 and indirect bidders taking 31 per cent compared to 34.8 per cent last time. At the close then, the curve bull flattened as the yield on the 2yr dropped 8bps to 0.96 per cent and the 10yr yield fell 10bps to 3.69 per cent. The 5yr yield fell 13bps to 2.42 per cent. Aussie futures followed the US lead and rallied hard on the 3s – 12 ticks on a 13 tick range (to 94.72). 10s were up 9 ticks on a 9 tick range (94.29).

Now check out the euro. Remember that the German Chancellor was out yesterday suggesting that the value of the euro would be defended at all costs. She may have to act sooner that expected on that promise if last night's action is anything to go by. The euro was off 185pips to 1.3180. Sterling followed suit and sits at 1.5256 while the Australian dollar was off just under a big figure at 0.9150 (yen bucked the trend to sit at 93.18 from 93.85). Overall the dollar index rallied a bit over 1 per cent.

So, the flow-on is predictable and commodities were then smashed – crude down 2.7 per cent ($81.87) with base metals off between 1.3 per cent and 4.1 per cent. Gold as you’d expect outperformed, rising another $15 to $1168.

Equities were pretty messy everywhere you look, despite a run of solid earnings reports and broker upgrades. Stocks were down between 2.6 per cent and 3 per cent on the major European indices and US markets tanked on the open.

I find this amazing. Greece, at 0.5 per cent of the global economy leads market action. Who would have thought – I mean Australia is double the size and to my knowledge we have never sparked a global rally. What about contagion from us? Think of the benefits to NZ!

Alas it was not to be and the S&P500 was down 2.3 per cent (1183) at the close, with financials, basic materials and energy stocks weighing most heavy – no sector was spared, however, and healthcare stocks, for instance, were the lead sector, falling just 1.1 per cent. Otherwise the Dow was off 213pts to 10991, the Nasdaq fell 2 per cent (2471) while the SPI dropped 1.8 per cent (4794).

That’s pretty much events as they stand. There wasn’t a lot of data and I don’t think anyone would have taken notice anyway. Between Greece and Goldman’s senate hearing, a 24pt jump in the Richmond Fed index in April (to its highest level ever, +30) just didn’t cut it. Nor did a 5.6pt jump in consumer confidence in April or a 0.6 per cent. Other than that house prices dipped 0.9 per cent in February according to the Case/Shiller house price index.

Big day today with Australia’s CPI at 1130. As I mentioned yesterday, I’m expecting the average of the trim and weighted to be around 0.7 per cent q/q (+3.0 per cent y/y) which is consistent with the market. Nevertheless, I reckon the ex-volatile, ex-deposit number will be substantially higher at 1.1 per cent q/q. So my overall estimate of the core number is 0.8 per cent q/q and 3.1 per cent y/y. On headline I’m thinking something in the order of 1 per cent q/q and 3.0 per cent y/y – lead by fuel, housing and some seasonal (pharmaceuticals etc). At 1pm we get the NBNZ business confidence report and the German CPI tonight. Tomorrow morning we get both the FOMC and RBNZ and as discussed, no changes are expected.

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