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The National Statistical Service of Greece has recently published the unemployment report for June 2009. The report shows a rise in unemployed people from 7.3% in June 2008 to 8.6% in June 2009. The total number of employed remained pretty much unchanged where the non-economically active population of Greece has decreased from 4,314.8 thousands last year to 4,265.6 in June 2009.

The results of other industrial production statistics reports which show how the global credit crisis has impacted Greece and to what extent are summarised in the table below.

                                                                      July 2009 Year on Year Comparison (YoY)

 Industrial Production                  -9.2%

Mining & Quarrying                    -14.3%

Manufacturing                           -9%

Electricity                                  -9.5%

Water Supply                               -0.7%

The Consumer Price index is the main measure of inflation for macroeconomic purposes and should form the basis for the government’s inflation target. The below CPI summary report shows the yearly percentage change in prices of consumer goods and services purchased in Greece.

                                      August 2009 YoY % Change

Food and Drinks                               1.6%

Alcohol and tobacco                        6.3% 

Clothing & Footwear                       2.9%

House & Utilities                              -4.9%

Furnishings                                       1.9%

Health                                                2.8% 

Transport                                           -3.1%

Communications                              0.4% 

Culture & Leisure                             1.2%

Education                                          4.7%

CPI YoY                                              0.8%

This report shows how much prices have changed in the past 12 months and it’s obvious from the summary table below that since the credit crisis begun prices have mainly risen. There are only two categories that have dropped, namely House and Utilities and Transport services, but at least one can argue that the drop in prices for these two particular categories is quite significant. However the rise in Education prices is also substantial as it is the price rise for alcohol and tobacco consumption.

Statistics may not always reveal the full picture. That’s why my advice is always to do your homework and always evaluate each statistical report in comparison to others in order to reach a conclusion about the country’s current economic state.

Having said that I hereby provide you with a summary of the June retail sales report again from the National Statistical Service of Greece in Athens:

Finally, it would be wrong not to mention the state of the Greek banks at all so I’ll briefly mention the following: yes, it is true that the Greek banks had had no major exposure to the subprime mortgage market but once again if you only look at this event in isolation you are going to miss the point out.

Greek banks do face higher borrowing requirements to fund the current strong loan growth at a time of rising costs and this is all due to the global credit crunch crisis.

The large Greek banks are indeed well-capitalized compared to the standards set by central banks in other European countries; however please do not forget ever-ever again the first and most important economic lesson (pay attention!): Cash is King! And as a senior banker put it: “Banks are known to fail because of liquidity not capital”

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Alpha Bank

Piraeus Bank announced the launch of a new bond issue that totals 500 million Euros. On the 9th of September, the bank published a press release which claims the great success of the new 3 year senior bond issue. The bond was issued under Piraeus Bank’s Euro Medium Term Note programme and it was accepted with great interest by the international markets.

In just a few hours the orderbook was oversubscribed by 1.5 times (730 million Euros). Almost 65% of the total amount was finally allocated to international investors from 20 different countries.

The new 3 year bond is a fixed rate note with a coupon of 4% and shall be listed on the Luxembourg Stock Exchange. The transaction was lead-managed by Barclays, Citigroup Natixis and UBS.

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Commentary: Yen crosses stabilise following a heavy selling. US equities closed falt and the Nikkei was down by 1.38%. The Aussie, USD and EUR rallied against the Yen as investors took profit on risk trades on short covering. The previous support levels are now considered the key sell levels as the market is selling in to any rallies.

Data due today:

06.00 GMT – German Consumer Price Index exp 0.4% for June

06.00 GMT – German Consumer Price Index YoY exp 0.1% for June

06.00 GMT – German Trade Balance exp Euro 9.0 Billion for May

06.00 GMT – German Current Account exp Euro 3.7 Billion for May

06.00 GMT – German Imports exp 0.8% for May

06.00 GMT – German Exports exp 1.5% for May

08.00 GMT – ECB Monthly Report for July

08.30 GMT – U.K. Visible Trade Balance exp Deficit Gbp 6.75 Billion for May

08.30 GMT – U.K. Total Trade Balance exp Deficit Gbp 2.85 Billion for May

11.00 GMT – BOE Rate Announcement exp No Change at 0.5%

12.15 GMT – Canada Housing Starts exp 130,000 for June

12.30 GMT – U.S. Initial Jobless Claims exp 603,000

14.00 GMT – U.S. Wholesale Inventories exp -1.0% for May

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The construction activity fell by 6.9%, three times as much as initially predicted. The UK’s Gross Domestic Product (GDP) is now estimated to plunge by 4.3% in 2009, the Organisation for Economic Cooperation and Development reported on 24th of June. The GDP decline for the euro area is estimated to be 4.8% which compares with a 2.8% estimated decline in the USA.

To make things a bit worse, unemployment figures are still on the rise as financial services companies are still trying to strengthen their balance sheets by controlling their leverage (debt) and cutting down their expenses. The only pleasant surprise in this week’s economic data releases is the stabilisation of house prices. However, demand is still low and mortgage lending too limited to support the scenario of a full recovery in house purchase activity.

Bank of England Governor Mervyn King confessed last week he feels “more uncertain now than ever”…

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Stock prices have risen substantially (some over 80%) over the past 3 months but was this rise justified? Theory says that prices go up when earnings expectations rise. As we are counting almost 2 years into the worst recession of the modern times, I really cannot see how anyone expects earnings to go up. What we do expect and hope is for their (and ours!) debt to go down! And this is what is happening. We have actually funded their debt repayments in a barely disguised stockmarket trap.

How? By being overly optimistic, even though millions of us recently lost their jobs. The strangest thing of all (I need a psychiatrist to explain this, please come forward if you are one!) is that while as taxpayers we still moan about governments using our taxes to bailout the same companies we blaim that bombed the whole economic system up with crap securities…. as investors we have used up any savings left to step our foot in the stockmarket so not to miss out all these eye-popping opportunities (yes, they are not seen or judged as companies anymore; little attention we pay to their balance sheet and other financial statements). So who is to blaim again?

So far so good. Companies are very happy with the results. According to data compiled by Bloomberg, it has been reported that over 165 companies (didn’t specify if they were all American) raised a record $87 billion since the start of the sucker’s rally (beginning of March 2009) in US secondary share sales. What they are doing with all these money is deleveraging, which means repaying as much debt as humanly possible at the earliest possible date. They know that without healthy balance sheets they cannot even start talking about profits!

Another reason, especially true for the banking industry, is that they do not enjoy the loss of control of their business affairs that they have had to agree to in order to get their dirty hands in the Troubled Asset Relief Program (TARP) funds. Who would?! Repaying similar debt would mean that they can go back to the way they are used to doing business.. more or less (supposingly they will be more closely regulated, but this is just in theory).

If you are one the suckers and got stuck in this rally don’t be too hard with yourself. Psychological research has proved that the poorer a person feels, the more likely he will be willing to undertake risk, his only true asset being his hope for a quick turnaround.

So the deeper the recession the more money companies make? I hope not…

Have you or are you looking to invest in stocks?

When do you think it’s the best time to invest?

What’s your exit strategy if any?

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GM had so far used up $19.4 billiion in US Treasury loans but billions more are needed to keep the giant running. So the suggested a deal to their existing bondholders… an exchange offer that got easily rejected.

The 100 year old automaker has been trying to convince its bondholders to exchange their debt for equity in a newly formed company but as bondholders spurn the debt offer the company is heading for dead end and the bankruptcy filing is now certain, said analysts and laywers.

The German government has not taken the news lighthearted and is trying to protect GM’s Opel unit by splitting the carmaker off from its US based parent company after 80 years. The Chancellor Angela Merkel is the hostess of a metting taking place in Berlin later today where the future of Opel will be discussed. Ultimate goal would be to place Opel in a trust to receive further bridge financing of over $2 billion, governmental spokesperson Thomas Steg said.

GM, the US parent is supporting this act by transferring its European assets such as sales force, technology and plants to Adam Opel. GM Europe spokeswoman Karin Kirchner believes that this move will help ring-fence the Europen Open/Vauxhall operations from the prospective bankruptcy.

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Support & Resistance

Support at 1.2985 should hold to keep the short term uptrend intact and the outlook higher with  1.3060/70 as first, and 1.3130 as next target levels on the way up.

Resistance at 1.3150 should hold to keep the outlook bearish with 1.2750 ase the next target on the way down.

Bears have managed to contain price action below the retracement zone and the 200DMA to remain in medium-term control. The latest break under the 61.8% retracement of the latest up-swing should now increase optimism for a retest of 1.2834, which shields the key lows between 1.2455 and 1.2328.

Oscillators are pushing into over-sold territory but show no sign of an immediate reversal (or corrective bounce). Only a recovery above 1.3581 would start to question the latest decline for another attempt at the 200 DMA and the high at 1.3737. However, only above the latter would change the medium-term outlook for EUR/USD.  Below 1.2328 would resume the down-trend towards 1.1832.

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De-industrialization as a concept can generally be defined as “a decline in the ratio of the workforce employed in industry” (Patnaik, 2003). Drawing upon previous analysis by Alford (1997) it was decided that the key measures of de-industrialisation that should be considered would be the number of people employed within the manufacturing industry, manufacturing output/productivity, and the level of import and exports of manufactured goods.

The outlook for Gross Domestic Product in 2009 has deteriorated once again based on national accounts data submitted that show that most economies saw a contraction in the last quarter of 2008.

In Western Europe, all indicators show further huge falls in manufacturing production in the first quarter of 2009, following substantial contractions in the last quarter of the previous year. This is particularly true for Germany which is Europe’s main industrial power.

In the United States, the Federal Reserve’s beige book survey of activity in 12 Fed districts over January and most of February showed job losses spreading beyond manufacturing and the financial services.

In France, manufactured output contracted by 4.1% in one month in January and sentiment is definitely worsening. There is however some evidence, that industry could potentially receive a boost from the government.

In the UK business expansion plans have been hit by credit restrictions and dropping demand and output has fallen by over 10% in December from its October 2007 peak. Unemployment also rose to 3.8% in January.

In Canada, exports have fallen substantially and both industrial and manufacturing output contracted on the bank of the deepening recession in the industry.

In Netherlands, manufacturers are more pessimistic than ever before and analysts expect a huge manufacturing production contraction of 9.5% for 2009. Investments also feel by 8.7% with businesses cutting off costs and expansion plans. Unemployment is still on the rise.

In Norway, both consumption and investment has contracted in the last quarter of 2008 and the industrial sector is feeling the pain with manufacturing output down by 2.8%. This comes as a result of weakening external demand for manufacturing exports.

In Sweden, the manufacturing sector has been especially hard-hit by the global financial crisis, with production down by almost 8% from the previous quarter and new orders slumping. The labor market has worsened further, with unemployment climbing to 7.3% in January.

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The G20 meeting over the weekend could not be much different and it was bound to let people down as there was no speculation of new policy agreements. Good intentions were voiced though in the shape of more regulations both for hedge funds and rating agencies. More money supply to help emerging countries and clearance of toxic assets were also discussed but the markets remained heavily indifferent as all of this is pretty much a repetition of what has been heard before.

A Sunday Times article discussing the ‘Cracks in the Euro’ could weigh on the single currency today and tomorrow as the current crisis is putting a large strain on the Euro zone as it celebrates its first ten years. Many commentators are saying it will buckle under the strain.

Focus this week will be on Central Banks with the Federal Open Market Committee (FOMC) and Bank of Japan (BoJ) meeting on Wednesday. No change is expected but comments will be closely watched for further speculation regarding quantitative easing.

“Quantitative easing” refers to the creation of ‘thin air money’, or in simpler words money that Central Banks are printing and later injecting into the private banking system in order to increase the money supply

The Bank of England has started the buying of Gilts as part of its quantitative easing operations. The Swiss Bank has weakened their currency and market is now looking to see if the FED will join in and start buying longer dated Treasuries. If this is the case then it is likely that the USD will come under some pressure in much the same way GBP has last week.

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