The crisis of sovereign debt in the euro area

The crisis of sovereign debt in the euro area remains in the spotlight and European finance ministers met Sunday to discuss next steps on Greece. Everything is clear for now. The Greek government approved legislation to implement the new setting last Friday with a majority of 155 members in favor of 136 against in the second round of voting. After the double vote in parliament, the disbursement of the fifth part of the original package of 110 billion euros will not be any obstacle and certainly is a topic discussed in yesterday's meeting of the Eurogroup and so will be Tuesday, July 5 by the International Monetary Fund (IMF).

Now that we have solved the issue of liquidity in the short term, all efforts will be to complete the look of the "private sector involvement" in the new financial aid package. The news "show signs" that there is progress on both the commitment of banks (and other institutional investors) to keep exposure to Greece and there is a possible approval by the rating agencies that these options will be considered a default, so we could be close to completion, possibly July 11. After the affirmative vote in the Greek parliament on austerity measures, the euro zone and the IMF surely will agree to pay one fifth of the aid package to Greece.

The past tense was a week for many, as the riots in Athens failed to prevent the party from the Greek Prime Minister Georgios Papandreou, adopt more austerity measures to achieve 12 billion additional euros this month. At this time, the debt of the peripheral countries of the euro area has fallen from the highs they reached absolute bond, so the Treasury to 10 years in Ireland are at 996 basis points, from Portugal in 913, the Spain in 287, in 217 of Italy and Belgium in 133. Stock markets have risen sharply, with the first Spanish Ibex (5.80%) due to the frivolous opinion that everything is "fixed" and that the euro will not fall yet. This same way of thinking saw the krona strengthened after suffering a blow in June, as the Swiss franc fell from its all-time high of 0.8176. The pound fell against many currencies, including an absolute minimum of 1.4880 against the Australian dollar, to 1.9255 against the New Zealand dollar and 1.3255 against the Swiss franc, while against the euro was 0.9084 pounds ( or 1.1000 euros), its lowest level since March 2010. Interest rates on bonds fell in the UK, USA and Germany, many of which corrected a 38% fall in the last 6-11 weeks, so that the Euribor futures lost 20 to 30 points basis, while contracts of Eurodollar and Short Sterling remained as they were.

The official rate of employment (nonfarm) and the manufacturing ISM will be the central focus points in the United States this week. Both could increase the fear that this period of economic slowdown amid the recovery trend of recent months could be longer and deeper. The purchasing managers' indices have a loose regional results and suggest that the ISM will also fall, while poor macroeconomic performance over the last two months does not seem to have encouraged companies to accelerate recruitment. However, lower energy prices, falling mortgage rates and recovery actions could help stabilize the situation and cause results to be better as we enter the third quarter.

Recent economic indicators have been affected by the earthquake / tsunami / nuclear accident in Japan, especially in the land of the rising sun, where industrial production has fallen by 5.9% in May. Not surprisingly, the Tankan index of the second quarter results show a low or that retail sales fell 1.3% in May (2.4% among the largest retailers). Vehicle production rose slightly in May, so that instead of indicating a fall of 60.1% as in April, the decrease was 30.9%. Probably the logistical obstacles are causing Japan's CPI (excluding fresh food) has risen by 0.6% per year, an unexpected relief to authorities who have been fighting deflation for years.

Turkish Inflation in June could be a credibility test for the current stance of monetary policy by the Central Bank of Turkey. We anticipate an increase in annual inflation of 7.4% compared to the majority view of a drop of 7.2% to 7.0% in May. Food prices remain a source of volatility as we get closer to Ramadan and Bayram in August that could add uncertainty to the issue.

In the Czech Republic, we expect headline inflation has risen slightly from 2.0% to 2.1% annually, growth slowed by moderate annual price of fuel. A positive effect should be reflected in the acceleration of export growth in industrial production and retail sales.

In Brazil, inflation should moderate the trend in June and July and a monthly fee to keep close to zero. However, this is a temporary fact. As recently noted the country's central bank, unless the monetary tightening cycle is not extended, headline inflation will not reach the target until early 2013. We expect the bank to raise rates twice more in this cycle. Results of Purchasing Managers index should coincide with our view that fears for China's growth will prevent the State Board approve more increases in interest rates by the Bank of China this year.