Olympia Trust Foreign Exchange | Calgary, Vancouver, Toronto
Market Update
Wednesday May 16, 2012
Good morning,
The primary topic of focus in the market continues to be Greece; however, more and more the conversation is shifting from not whether Greece will leave the Euro (either willingly or through expulsion), but when.
The upcoming election in Greece has been pegged for June 17 and to no one’s surprise, the Greek central bank has told the government that Greek banks are experiencing massive and accelerating cash outflows as citizens withdraw funds due to the uncertain future. It will not take much more bad news for the fear to evolve into a panic and outflows to turn into a run on Greek banks. It seems with every new trading day, the Greek stock market plunges to a new 20-year low.
Political discussions in Europe are deteriorating now that there is not a consistent stance coming from Greece. German Chancellor Angela Merkel reiterated that they do not want to see Greece leave the Euro (no surprise after all, without Greece the Euro would be much stronger, hurting German exports); however, Greece risks not receiving future rescue fund payments if they do not play ball and honor the existing austerity program.
The upcoming election in Greece is effectively a referendum on whether Greece embraces Euro membership and the austerity program that comes with it or if they choose to leave the Euro and go back to the drachma. Current polls show the latter as the most likely outcome, which also happens to be the worst-case scenario. Greece will default on loans and need to borrow money to buy enough printing presses to print more drachmas while Europe will be left with massive write-offs on Greek holdings and likely the need to reinflate the Euro.
US housing starts and building permits in April came in at 720K vs. the expected 690K and 730K respectively. Both reports are rising slowly, no doubt helped by the trillions in liquidity that has been pumped into the economy; however, remain miles away from the high of 2.2MM seen in 2006.
The TSX has opened the morning unchanged while the Dow has rebounded 30 points after falling 0.5% yesterday. Crude oil is down another 1% to $93/bbl on risk aversion, though the Canadian dollar remains unchanged. Fundamentals remain strong for the CAD; however, uncertainty in Europe will always be the trump card until the risk of a default or Euro exit is off the table. Gold has also fallen another 1% to $1,540/oz.
For great rates and full security on your funds, please contact your nearest Olympia Trust Company Foreign Exchange office so we can assist you with your FX requirements whether it be spot trades, market orders, or forward contracts for risk management.