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EU Struggles With Familiar Problem: Greek Debt

By Marvin ClarkStock MarketsFeb 12, 2017 01:16AM ET
EU Struggles With Familiar Problem: Greek Debt
By Marvin Clark   |  Feb 12, 2017 01:16AM ET
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DOW + 96 = 20,269
SPX + 8 = 2316
NAS + 18 = 5734
RUT + 10 = 1388
10 Y + .01 = 2.41%
Oil + .81 = 53.81
Gold + 5.70 = 1234.50

Reckitt Benckiser (LON:RB) has agreed to buy Mead Johnson Nutrition (NYSE:MJN) for $90 a share, or $16.6 billion, taking the UK consumer-products group into the infant food market. Including debt, the deal is valued at $17.9 billion. The transaction will add to Reckitt’s per-share earnings in the first full year.

Blackstone (NYSE:BX) has agreed to acquire insurance broker AON’s employee benefits outsourcing unit for $4.3 billion in cash, giving Blackstone ownership of a business that processes work benefits for 15% of the U.S. population. It will also allow Aon to exit the capital-intensive business, allowing it to invest in growth areas beyond its core insurance brokerage operations.

The University of Michigan preliminary February consumer sentiment index fell to 95.7 from January’s final reading of 98.5. The most marked decline was in a forward-looking part of the survey, down 5.1% from January.

Oil is rallying on OPEC. West Texas Intermediate crude oil is higher after data released by the International Energy Agency showed a record-high 90% compliance to the OPEC output deal in the first month.

The IEA, which advises industrial nations on energy policy, said that if current compliance levels are maintained, the global oil stocks overhang that has weighed on prices should fall by about 600,000 barrels per day in the next six months.

But this may be as good as it gets for OPEC; participation in production cuts has been uneven among OPEC members, with Saudi Arabia shouldering the cuts to compensate for other countries which continue to pump – a situation that won’t continue indefinitely.

The Labor Department says import prices increased 0.4 % last month after an upwardly revised 0.5 % rise in December. In the 12 months through January, import prices jumped 3.7 %, the largest gain since February 2012, after advancing 2.0 % in December.

Import prices are rising as firming global demand lifts prices for oil and other commodities, but the spillover to a broader increase in inflation is being limited by dollar strength. Prices for imported fuels increased 5.8 % last month. Import prices excluding fuels fell 0.2 %. The report also showed export prices edged up 0.1 % in January.

Iron ore futures surged past $100 a ton, while spot ore rose to $83.84 a dry ton, the highest since October 2014. The rise came after official data showed that China’s exports surged 7.9% from a year earlier in dollar terms, leaving the country with a trade surplus of $51.4 billion.

In a shift, President Trump agreed to honor the “one China” policy during a phone call with China’s leader Xi Jinping. Trump angered Beijing in December by talking to the president of Taiwan and saying that the United States did not have to stick to the policy.

Trump held a news conference today with Japanese Prime Minister Shinzo Abe at the White House. The U.S. and Japan account for nearly a third of the global economy. Trade in goods and services between the world’s No.1 and No. 3 economies was worth nearly $268 billion in 2015.

Trump vowed that the currencies of the U.S., China and Japan would soon be on “a level playing field.” Trump did not explain how the three countries would reach a level playing field, or what he meant by the phrase. Trump also said he will make a fresh policy announcement next week in response to the court ruling blocking his travel ban. Again, no details.

$21.6 billion. That’s how much an internal Department of Homeland Security report says Trump’s “wall” along the U.S.-Mexico border would cost. The report’s estimated price tag is much higher than a $12 billion figure cited by Trump during his campaign and the $15 billion estimate from top Republican leaders in Congress.

Meanwhile, the European Union is struggling with a familiar problem – Greece. The country could soon run out of cash and will not be able to make crucial debt repayments. Greece is currently on a third bailout program worth €86 billion euros ($92 billion); that bailout program still has more than a year to go, but the IMF is worried that Greece’s debt is not sustainable.

If indeed European creditors recognize next week that Greece has completed all the agreed measures for the second bailout review, then this would pave the way for new disbursements. With fresh funds, Greece should be in condition to meet deadline payments next summer and avoid a financial collapse.

But the view among creditors is that such a deal next week is “unlikely”. Even as Greece has shown some economic growth, 0.4% last year with 2.7% forecast for 2017, and the Greeks have managed to build a small budget surplus; the Greeks debt load continues to increase, yields on government bonds has climbed into double digits and debt has increased to an expected 183% of the country’s total economy from 159%.

And the main reason is that the Greeks are not eligible to participate in the European Central Bank’s Quantitative Easing program. And right now, the ECB is the only buyer of Euro bonds.

The IMF weighed in this week, publishing its analysis of the challenges to the Greek economy. The IMF says that in addition to needed reforms, European governments need to provide debt relief to Greece. The IMF analysis is that Greece represents a real problem without debt relief; Euro creditors believe they can present a unified front to break the deadlock. Eurozone governments, and especially Germany, are opposed to debt relief.

Today, Greece’s creditors called for more reforms in the form of more austerity measures. The additional austerity dose would hardly be accepted by the government led by Alexis Tsipras. The leftwing Greek leader promised not to impose further cuts or tax raises after almost seven years of painful measures adopted in exchange for the lenders’ money.

The Greeks have also opposed further pension adjustments, as it has adopted 11 cuts since 2010. There is a possibility of snap elections, which would add a new layer of uncertainty. And if things go wrong with Greece, Italy is next in line, with the second highest debt burden among Eurozone nations, plus a dangerously weakened banking system.

The Greek debt crisis seems like the never-ending economic story but that doesn’t mean the problem has been resolved. It doesn’t mean there is an imminent collapse, but consider this – Germany has been repatriating its gold. Germany has been bringing gold home from New York and Paris since 2013.

So far, 642 tons has been transferred. They just expedited a transfer of 330 tons stored with the New York Federal Reserve. They still have about 100 tons in a vault in Paris. Why the rush? The German central bank says it is bringing the gold home to help build public “trust and confidence.”

Sears Holdings (NASDAQ:SHLD) reported a 10.3% drop in comparable store sales for the holiday quarter, and said it would cut debt and pension obligations by at least $1.5 billion this year. Sears also announced a new plan to cut costs by at least $1 billion in 2017 by reducing overhead, improving merchandise at its stores and through better inventory management.

Renault (PA:RENA) peddled SUVs to Europeans and it worked. The French car company’s 2016 profit surged 38% to $3.4 billion from the year before thanks to the popularity of its new SUVs among Europeans. CEO Carlos Ghosn said the automaker would be open to a merger with Nissan if the French government would sell its stake in Renault.

Sweden’s SAAB (BS:SAABBs) has offered to build the world’s most modern fighter aircraft factory in India, it said on Friday, as it goes head-to-head with U.S. rival Lockheed Martin (NYSE:LMT) to supply hundreds of locally produced planes to India’s military.

Danish wind turbine maker Vestas Wind Systems (CO:VWS) has jumped to the top of the U.S. wind market, overtaking General Electric (NYSE:GE) in new capacity installed last year. Vestas, the world’s biggest wind turbine maker, supplied 43% of the 8.2 gigawatts of wind power capacity connected to the US power grid last year; GE supplied 42%.

The Galaxy S8 will be unveiled in New York next month, per the Wall Street Journal, and Samsung (KS:005930) is ready to display a whole host of new features. While the physical home button will be stripped away and the fingerprint scanner moved to the back of the device, and only curved-screen versions will be released. The company will also showcase its new virtual assistant called Bixby, and possibly its recently trademarked “Samsung Hello.” And yes, it will have a headphone jack.

For many liquors, aging is the key to their distinct flavors. Brandy is no exception, with top-shelf labels spending years in casks. But chemists think they have discovered a shortcut—ultrasound. Spanish researchers blasted ultrasound through a barrel of brandy for 3 days and the results were close to 2 years of aging.

Now, if they can just figure out a way to reverse the aging process. Still, something to keep in mind as we head into the weekend – if you are clever, you can get a lot done in just a couple of days.

EU Struggles With Familiar Problem: Greek Debt

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EU Struggles With Familiar Problem: Greek Debt

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