The Greek Saga and the Swiss GDP

On Thursday, the US equity markets opened lower and traded in a negative territory throughout the entire session, although paring some of the losses towards the end of the day. Overnight, Asian markets were also little changed, with the Nikkei 225 and Hong Kong closing flat, while the Shanghai Index lost 0.18%. This morning European stocks opened lower, with the German DAX losing as much as 0.88% in the first trading hour and the Euro Stoxx 600 dropping 0.50%.

The attention of the markets turned again onto Greece and the never ending saga surrounding the debt-ravaged nation that is weighting on European equities and bonds’ performances. Despite the confidence displayed by the Greek government and officials, the country’s international creditors and EU partners seems to have a rather different opinion. Despite stating that a solution was near to be reached, Greece has been told by its creditors that there is still “a long way to go” and that substantial stronger commitments to a complete overhaul of its economy are needed for them to approve the release of additional funds. The firm stance of the international community, meeting in Germany for a G7 summit, comes just a few days ahead of a major payment due to the International Monetary Fund on June 5th, and other two payments due later on next month amounting to a total of EUR 1.6 billion. While an increasingly concerned Greek Prime Minister held a hour long phone call with the German Chancellor and the French President; additional pressure on Greece to accept to implement stronger and more drastic economic reforms came from the G7 meeting in Dresden, with some non-EU officials adding they voice to the widespread general frustration surrounding the stalling negations and the stance taken by the Greek government. The situation is worsening by the minute for Greece, with the IMF insisting that any support for a new bailout program must be firmly conditional on a credible commitment by Greece to achieve and maintain a medium-term primary budget surplus and to radically change its pension system. Within this deteriorating environment, analysts are now forecasting around 40% chances that Greece will not manage to secure enough funds in time for the repayments due in June and that it will be forced to miss such payments and impose capital control measures. Such a result will most likely exacerbate the already precarious position of the country, pushing Greece closer and closer to a probable exit from the Euro.

Investors’ attention is also aimed at the latest Swiss GDP’s data released yesterday that showed how the country’s economy contracted the most in six years as the strong Franc took a heavy toll on Swiss exports. During the first three months of the year Switzerland’s GDP declined 0.2%, compared with an expansion of 0.5% the previous quarter and below analysts’ expectations of a flat figure. The latest GDP data are somehow supporting critics towards the Swiss Central Bank’s decision to suddenly abandon a 3-year long exchange cap against the Euro that caused a sizable appreciation of the Swiss Franc, which is now negatively impacting the country’s export-based economy. While the SNB’s President Thomas Jordan predicts that the Swiss economy will stabilize and grow just below 1%, most analysts disagree and expect the strong currency to continue to weight on economic activities and GDP growth, predicting that the country may indeed turn into stagnation, if not recession, by the end of the year.

This article was issued by Paolo Zonno, Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.