June 05, 2015
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The University of Michigan posted a better than expected number for the United States consumer sentiment at 94.6, but major equity indices were under pressure by fear of Greece’s possible debt default. For the first time, senior political leaders of European Union discussed a possible Greek debt default as negotiations between Athens and its creditors stalled ahead of an end of the month repayment deadline. With unemployment hovering around 26 percent, Greece’s situation is deteriorating every month. Greece currently owes $352.7 Billion to foreign investors. About 75 percent of that debt is owned by European Central Bank (ECB) and International Monetary Fund (IMF). While German Chancellor Angela Merkel has repeatedly said that she will keep working to allow Greece to stay in the Eurozone, the German Finance Minister, Wolfgang Schaeuble, is willing to let Greece exit the Eurozone unless its government takes measures to ensure the country’s long-term survival in European Union. If Greece defaults on its debt, then other smaller economies in Europe like Italy, Cyprus and Spain could face troubles as well. Eurozone is already facing negative or muted growth and many countries are experiencing unusually high double digit unemployment rates . At a time when ECB is actively trying to fend off the deflation in the Eurozone by introducing 1 Trillion Euro bond buying program, a default by Greece would be a major setback and could possibly lead many countries in the Eurozone into recession. In equity markets, sentiment plays a big role in the direction of movement of markets. Impressive growth in the US economy and a growing Chinese economy has instilled a sense of false confidence or a bubble among investors, however with a Greek debt default on the horizon, fear could quickly spread to global markets. Although Greece is not a significant economy and does not play a major role in global trade, its default could have disturbing effects across Europe and North America.
Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics