September 12, 2011 - Heavy Speculation on Greece
With no equity markets boost on the September 8 announcement of the President's U.S. economic recovery plan (details to be released today), entering today's U.S. markets opening, there remains heavy speculation that Greece will default on its obligations, with France at risk to the extent of approximately $56.7 billion (France is Greece's largest creditor) with the three largest French bank stocks down 13% and facing an S&P downgrade this week. However, France has proposed a restructuring plan for Greece, whereby 50% of debt held by creditors would be rolled over into a new Greek bond issuance with a 30-year term and an increased interest rate commensurate with the debt duration. Separately, the Eurozone/ECB is estimating there may need to be an additional 115 billion euros in private-sector contributions (in addition to 100 billion euros already committed) to an EU restructuring program. Germany is bracing for a Greece default.
Citigroup's most recent emerging markets research report (available today) forecasts the price of oil at $86 per barrel in 2012, and as a result of this significant decline has downgraded Russia, and certain emerging markets countries that produce oil. However, Citi believes short term inflation in the emerging markets will decrease. Brazil's economy is slowing however will still grow at 3.5% to 4% this year and retain low unemployment; foreign goods will continue to sell and Brazil's consumer spending continues to be very strong.