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By Gaurav Kashyap, Head of DGCX Desk at Alpari ME DMCC
The debt structuring sees bondholders agreeing to write downs worth 53.5% of their original value, which equates to more than €100bn in Greek debt being wiped off the slate. Following the announcement, markets turned their focus to the next step of whether the credit default swaps of Greek debt, insurance type contracts that are exercised when Greece's creditors suffer losses, would be triggered. With the CAC invoked, the International Swaps and Derivatives Association (ISDA) termed it a restructuring credit event and as a result, and the exercise is expected to trigger payouts in excess of $3bn of default insurance, covering more than 4,000 credit-default swap contracts. The ISDA stated that an auction will be held for outstanding CDS transactions on the 19th of March.
US jobs data continues to provide support
As if the Greek PSI announcement wasn't enough, traders had a stacked economic calendar to deal with in trading this week with Friday's US jobs data the headline event. The numbers came in stronger than expected, with Non-Farm payrolls increasing by 227,000. Expectations were for a gain of 210,000 with the silver lining being the previous month reading being revised up to 284,000 from 243,000. Private payrolls increased to 233,000, up from an expected 225,000, with the previous month reading revised up to 285,000 from 257,000. Overall unemployment was unchanged at 8.3%.
The other bright spot on the report was the increase in the participation rate, to 63.9% from 63.7%. The past few months had seen the participation rate dropping to historic 30 year lows, throwing the gains in US payrolls in doubt, however Friday's reading further strengthened the argument that the US job's market is truly on the path to recovery.
US equities rallied on the news, with the US Dollar also making solid gains against its major counterparts. With the current run of US data, topped off by a rather stellar jobs report throws further doubts on the need for quantitative easing. With the backbone of the US recovery dependent on jobs, Friday's report sees the Fed less likely to introduce additional easing measures and as a result, the lack of such measures will keep the Greenback well bought.
Bank of England, ECB keep rates unchanged
Along with the US data, five central banks convened this week to announce their rates. The Bank of England kept their interest rates unchanged at 0.50% (asset purchase target unchanged at £325bn) and their meeting minutes are due in two weeks time on the 21st of March.
Much attention will be focused on the voting pattern in the MPC and if more members swayed towards voting towards increasing the asset purchase program by £50bn-75bn. Across the English Channel, the European Central Bank kept rates unchanged at 1.00% with Draghi spending much of his press conference tooting his horn on the success of the ECB's two LTROs. Draghi also said that "the economic outlook is still subject to downside risks," and that "all tools to control upside risks for price stability are available."
With regards to the inflation rates, Draghi said that the Euro area inflation was 2.7% in February, up from 2.6% in January. While inflation rates are expected to remain above the target 2% through 2012, consumer prices should dup below the target rate in 2013. Draghi also stressed that European governments must complete fiscal consolidation while banks must improve their resilience of their balance sheets.
Staff
