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03/01/16 Market notes

Stournaras Warns on Measures as Tsipras Defiant on Pensions

Stournaras Warns on Measures as Tsipras Defiant on Pensions

Bank of Greece governor Yannis Stournaras gave a stark warning about the risk of Greece failing to reach an agreement with its creditors on a set of measures attached to the country’s bailout as Prime Minister Alexis Tsipras reiterated his government won’t succumb to “unreasonable” demands for additional pension cuts.

The European Union is now much less prepared to deal with another Greek crisis, Stournaras wrote in an article published in Kathimerini newspaper, in an unusually strong public intervention, as Europe’s most indebted state braces for negotiations with creditor institutions on a set of tough economic steps, including pension and income tax reform. A repeat of the 2015 standoff which pushed Greece to the verge of leaving the euro area would entail risks that the country’s economy may not be able to withstand, the central banker said.

After months of brinkmanship which resulted in the imposition of capital controls last summer, the government of Alexis Tsipras signed a new bailout agreement with the euro area committing Greece to economic overhauls and additional belt-tightening in exchange for emergency loans of as much as 86 billion euros ($93.4 billion). Greece will implement the agreement, Tsipras said in an interview with Real News newspaper published Saturday, adding though, that creditors should be aware that the country “won’t succumb to unreasonable and unfair demands” for more pension cuts.

Greece will reform its pension system, which is on the “brink of collapse” through “equivalent” measures targeting proceeds equal to 1 percent of the country’s gross domestic product in 2016, Tsipras said. The proposals include raising mandatory employer contributions, according to the country’s Labor Minister, George Katrougalos. Creditors oppose an increase in compulsory contributions, as they argue these create a disincentive for hiring workers and declaring incomes.

Negotiations with representatives of the European Commission, the European Central Bank and the International Monetary Fund will be “tough,” and the government is redoubling its efforts to find “diplomatic” support, Katrougalos said in an interview with To Ethnos newspaper, also published Saturday.

Stournaras warned, however, that escalating discussions to a level of European Union leaders would be “exceptionally dangerous,” at a time of open divisions within the bloc on issues ranging from immigration to banking union. Stalling negotiations would deepen recession, and lead to a tightening of restrictions in the movement of capital, according to Stournaras, who is also a member of the Governing Council of the European Central Bank. The government must implement the agreement that it negotiated last summer and parliament must back it, Stournaras said, blaming the capital shortfall of Greek lenders identified last year on the prolonged wrangling between Tsipras and euro-area states.

In addition to pension reform, creditors also asking Greece to implement more belt-tightening in order to meet an agreed primary surplus target of 3.5 percent of GDP, excluding interest payments, by 2018. According to Greece’s finance minister Euclid Tsakalotos, the International Monetary Fund isn’t convinced how the country will meet this target. The IMF doubts the efficiency of some measures already adopted and is more pessimistic on its assumptions about the Greek economy, Tsakalotos said in an interview also published Saturday in Kathimerini.

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24/12/15 Market notes

U.S. dollar drifts lower against euro, yen in pre-Christmas trade

U.S. dollar drifts lower against euro, yen in pre-Christmas trade – The dollar edged lower against the euro and yen in subdued trade on Thursday, with moves likely to remain limited ahead of the Christmas holiday.

A pedestrian walks past a money exchange bureau with a board displaying the exchange rate of the U.S. dollar against the Chilean Peso, in downtown Santiago October 30, 2014. REUTERS/Ivan Alvarado

A pedestrian walks past a money exchange bureau with a board displaying the exchange rate of the U.S. dollar against the Chilean Peso, in downtown Santiago October 30, 2014. REUTERS/Ivan Alvarado

Trading volumes are expected to remain light, with much of the Western world already shuttered for the Christmas and year-end holidays.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.27% at 98.12 during European morning hours.

The index, which has fallen back to levels seen before the Federal Reserve raised interest rates on December 17, remains well off last week’s two-week high of 99.33.

The greenback weakened followed the release of mixed U.S. economic data on Wednesday. Orders for U.S. core capital goods, a key barometer of private-sector business investment, declined 0.4% last month, while shipments of core capital goods, a category used to calculate quarterly economic growth, slumped 0.5%.

However, separate reports showed that personal spending rose for the eighth straight month in November, while consumer sentiment improved to a five-month high in December.

With the first U.S. rate hike since 2006 out of the way, the focus is now on the pace of future rate increases. The Fed, from its forecasts, is anticipating four rate hikes next year. However, the Fed funds futures currently suggests there will be just two rate increases, in June and December.

The dollar slid against the euro, with EUR/USD gaining 0.37% to 1.0952. Against the yen, the greenback dipped 0.45% to 120.38 (USD/JPY).

Trading volumes are expected to remain light as many traders already closed books before the end of the year, reducing liquidity in the market and increasing volatility. U.S. markets close early Thursday, Christmas Eve, and are shut Friday for Christmas Day.

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03/03/15 Market notes

Iran’s Khamenei Warns of Repercussions for Saudi Cleric’s Death

Iran’s Khamenei Warns of Repercussions for Saudi Cleric’s Death

Iran’s Supreme Leader Ayatollah Ali Khamenei warned of repercussions after Saudi Arabia executed a prominent Shiite cleric critical of the kingdom’s Sunni rulers.

“The divine hand of revenge will take the Saudi politicians by the throat,” Khamenei, Iran’s highest authority, said on Sunday. Cleric Nimr al-Nimr “was neither encouraging people to armed protests, nor plotting secretly, all he did was to openly criticize.”

Iranian protesters armed with rocks and firebombs attacked the Saudi embassy in Tehran on Saturday and set parts of the building on fire after the execution of al-Nimr, an outspoken critic of the kingdom’s treatment of its Shiite minority. A small group stormed the premises and several people were arrested, Tehran police chief Hossein Sajedinia told the state-run Islamic Students’ News Agency.

Al-Nimr’s execution and the ensuing protests further strained ties between Saudi Arabia and Shiite-ruled Iran. The two regional powers are on opposite sides of Middle East conflicts from Syria to Yemen. Saudi Arabia is also concerned about Iran’s growing influence after last year’s nuclear accord with world powers.

Increase Tensions

The cleric was one of 47 executed across Saudi Arabia on Saturday for terrorism-related offenses. The men were convicted of crimes including bombings that targeted the traffic department and interior ministry in Riyadh, plots to attack military airports, and other strikes on security forces.

“This sends a message of resolve and firmness in Saudi Arabia’s policy of confrontation with its two enemies, mainly al-Qaeda and Iran,” Ibrahim Fraihat, senior foreign policy fellow at the Brookings Doha Center, said in an interview. “It will also increase tensions inside Saudi Arabia because it gives the Shiite community new grievances and symbols to rally around within the country.”

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