Recap 3-6-12

Main Items:

  • There is concern the Greek debt swap acceptance rate will be below 70%, but as long as the tender is above 66%, Greece can enable collective action clauses. The FT said CACs will most likely get triggered Thursday night. Total participation with the CAC could wind up being 90-95% and permit the swap to be completed by next Monday.
  • China’s central bank guided the yuan to an unusually weak level Tuesday, sparking speculation that the authorities are preparing the market for an imminent widening of the currency’s trading band (DJ)
  • Canadian Ivey PMI prices sub-index, seasonally adjusted, jumped to 73.1, the highest level since last Feb.


  • RBA kept policy rates unchanged at 4.25% as expected. “With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy remained appropriate for the moment. Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy.”
  • EU 4Q GDP declined -0.3% QoQ as exp and +0.7% YoY. Household Consumption and Fixed Capital spending both came in weaker than expected, which was offset by a better trade surplus.

Upcoming Data:

  • Wed: US ADP, iPad 3 product launch
  • Thur: Deadline for Greek PSI, China CPI, RBNZ, BoE, ECB and BoC
  • Fri: PSI results announced, US Payrolls


The popular culprit for the biggest sell off of the year was worries of insufficient votes for the Greek PSI. If go with the consensus assumption that the PSI vote exceeds 50% on Thurs night, the oversold conditions suggest at least a moderate bounce overnight Thursday and Friday, at least until payrolls. Of course, if there are insufficient votes, there will be a sharp drop in risk assets. As a result, the probability distribution for risk assets appears bimodal.
Finally, note that the bond maturity is on March 20th. This means that should the PSI vote fail on the 8th, the Greek and EU authorities can still change the rules in time and push it through. For example, the ECB’s holdings of Greek bonds can be transferred to a separate entity that will then vote in favor. Or Greece can issue some 1 day debt, transfer the debt to its social security fund, which would then vote in favor. I’m not an EU legal expert by any means, but many months of work have been done that is dependent on this PSI deal going through, and it is unlikely the rule writers would be complacent about it failing.