After Moody’s credit rating downgrade of 21 financial institutions in the Eurozone, global markets didn’t take it too badly and continued to hold steady.....
After Moody’s credit rating downgrade of 21 financial institutions in the Eurozone, global markets didn’t take it too badly and continued to hold steady.
In an interview with CNBC-TV18, Trevor Williams, Chief Economist, Lloyds TSB talks about the Eurozone situation and how today's US non-farm payroll numbers could cough up negative data.
Williams says there are still debates about Greece’s ability to meet its side of the bargain. "The EFSF has almost been ratified but it is not enough. Many in the market see it as insufficient to solve the problems plaguing the Eurozone," he adds.
Also Read: Emerging markets to see renewed flows next year: StanChart
Below is a verbatim transcript. Watch the accompanying video for more.
Q: What are you expecting to hear from the non-farm payroll data later this evening? Is there a sigh of relief on some signs of improvement with respect to the US economic data that we have seen in the last couple of weeks?
A: There is indeed relief that the economic data from the US has been firmer than expected and confirms our view that for QE3 we are likely to see an annualized growth rate of between 2.5-3%. The issue of the data for the employment numbers is rather different. Unfortunately, the growth rate is not a sustained enough rate to begin to lead to a decline in the level of unemployment.
So, employment growth simply isn't strong enough. Today, we would be looking for figure based on the ADP, based on weekly claim and counts, based on the employment component of the ISM, to be of the order of 50,000-75,000. Not a good number; won’t be enough to stop the unemployment rate potentially pushing higher from the current 9.9% or so.
Q: After Germany gave its vote for expansion of the European Financial Stability Facility (EFSF), there has been no concrete action that has been put into place or executed. What is your assessment of how it’s going to proceed from here? What kind of toll would it have on equity markets?
A: The potential for continued disruption from the feedback of the crisis around Greece’s inability to meet debt and the EFSF being put together to give loans to the governments to be able to meet the interest payments on the debt that it has is not going to go away because the issue has not been resolved. There are still debates about Greece’s ability to meet its side of the bargain. The EFSF has almost been ratified. Netherlands ratified it yesterday but Slovakia for example hasn’t yet ratified it.
There is still more to be done. Once it is ratified, it doesn’t solve the problem which is that the feedback from worries about the ability of banks to be able to weather a default is leading to national governments having to recapitalise some of their banks. Dexia Bank is an example of this pressure.
The rating agencies are very worried about this and so the downgrades in the UK and in Portugal are about whether or not these banks would be strong enough to be able to withstand any strain from any potential default from Greece. So that worry about a Greek default is simply not going to weigh. The EFSF is seen by many in the market as not being sufficient to be able to solve the problem on its own.
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After Moody’s credit rating downgrade of 21 financial institutions in the Eurozone, global markets didn’t take it too badly and continued to hold steady.
In an interview with CNBC-TV18, Trevor Williams, Chief Economist, Lloyds TSB talks about the Eurozone situation and how today's US non-farm payroll numbers could cough up negative data.
Williams says there are still debates about Greece’s ability to meet its side of the bargain. "The EFSF has almost been ratified but it is not enough. Many in the market see it as insufficient to solve the problems plaguing the Eurozone," he adds.
Also Read: Emerging markets to see renewed flows next year: StanChart
Below is a verbatim transcript. Watch the accompanying video for more.
Q: What are you expecting to hear from the non-farm payroll data later this evening? Is there a sigh of relief on some signs of improvement with respect to the US economic data that we have seen in the last couple of weeks?
A: There is indeed relief that the economic data from the US has been firmer than expected and confirms our view that for QE3 we are likely to see an annualized growth rate of between 2.5-3%. The issue of the data for the employment numbers is rather different. Unfortunately, the growth rate is not a sustained enough rate to begin to lead to a decline in the level of unemployment.
So, employment growth simply isn't strong enough. Today, we would be looking for figure based on the ADP, based on weekly claim and counts, based on the employment component of the ISM, to be of the order of 50,000-75,000. Not a good number; won’t be enough to stop the unemployment rate potentially pushing higher from the current 9.9% or so.
Q: After Germany gave its vote for expansion of the European Financial Stability Facility (EFSF), there has been no concrete action that has been put into place or executed. What is your assessment of how it’s going to proceed from here? What kind of toll would it have on equity markets?
A: The potential for continued disruption from the feedback of the crisis around Greece’s inability to meet debt and the EFSF being put together to give loans to the governments to be able to meet the interest payments on the debt that it has is not going to go away because the issue has not been resolved. There are still debates about Greece’s ability to meet its side of the bargain. The EFSF has almost been ratified. Netherlands ratified it yesterday but Slovakia for example hasn’t yet ratified it.
There is still more to be done. Once it is ratified, it doesn’t solve the problem which is that the feedback from worries about the ability of banks to be able to weather a default is leading to national governments having to recapitalise some of their banks. Dexia Bank is an example of this pressure.
The rating agencies are very worried about this and so the downgrades in the UK and in Portugal are about whether or not these banks would be strong enough to be able to withstand any strain from any potential default from Greece. So that worry about a Greek default is simply not going to weigh. The EFSF is seen by many in the market as not being sufficient to be able to solve the problem on its own.
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