Monday, October 24, 2011

Today's Major Market Move: Greek Equity Market Down 6.7% Today

Volatility continues to be the name of the game. The Greek stock market was the subject of our Major Market Move post on Friday, surging 6%. Well today it gave that all back and then some, with the FTSE/ASE 20 Index sliding 6.7%. The only equity market to perform worse was in Cyprus which dropped 7.6% (and is now plumbing the lows of the year).

Click here to go to a live version of the table.

The market is reacting as if an adequate firebreak has been set up for the eventual default of Greece (and its conjoined twin Cyprus). This next chart show the major equity indexes from France,Germany,Italy,Spain,Portugal,Greece and Cyprus exemplifies the firebreak mindset:

Click here to go to a live version of the chart.

Each day that goes by Greece accumulates more debt making its financial condition ever more unsustainable. I don't know what specifically the EU authorities are waiting for in order to finally say "Ok, now we can let them default". The latest chatter seems to indicate that it is just a matter of everyone (in particular the French banks, which hold a bunch of Greek sovereign debt) agreeing on the size of the haircut. The authorities may also still be negotiating with the rating agencies to try to avoid a credit event, but I think there's zero chance of that happening. Do they expect an investor to willfully accept a 50+% loss on bonds for which they purchased insurance? Highly unlikely and I'm sure that will scenario will end up in the courts tout de suite.

A note on the website: This coming weekend we are going to begin collecting sovereign bond interest rate data and CDS pricing data. We are going to start out with a subset of countries at first (7 countries for bonds and about 30 countries for CDS') and hopefully in the near future expand to include data from all major global economies.

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