It's a big weekend. Some have even suggested it could herald a new wave of optimism for global financial markets.
Last night we received better-than-expected news on the US jobs front, and Sunday may see a successful (and final) meeting between European finance leaders and private Greek bond holders. Both Greece and the US are considered flashpoints in the global economy and so positive developments over the weekend will go along way to boosting confidence. Keep in mind though that it's taken a heck of a lot of stimulus to get to this point.
The US unemployment rate is now sitting at 8.3 per cent. Not bad. At least it's coming down. The big question though is whether the economy can sustain further job gains. There's been billions of dollars thrown at the economy. In a normal economic environment that would have resulted in near full employment. So with the debt ceiling as politically controversial as it is, we are now at a critical point where if the number of jobless doesn't continue to fall, it will be extremely difficult to find further stimulus in order to get it down again. The US has already thrown money at the problem, we need to continue to see further evidence it's working. The alternative is that growth will stall and the US will slide back into recession.
Greece is also a significant focal point this weekend. European finance leaders are set to meet with private Greek bond holders on Sunday night or early Monday morning Australian time. A successful outcome is crucial. The Greek government needs its private bond holders to accept a 70 per cent 'haircut' on their investments. That's a very bitter pill to swallow. Without that agreement the Greeks will likely forgo further aid from the bailout fund and will default on its debt payments due in the middle of March. I think this time the market's expecting more than just, 'the talks have been productive and we've agreed to meet again'. The markets are counting on a positive, concrete outcome.
In many ways if we had the opportunity to see ourselves where we are now when times were good, we would be shocked. The markets too have essentially priced that sort of shock in. Even the Australian share market has barely moved since 2005. We're essentially used to dealing with a critical situation, but make no mistake, the markets really are counting on something other than a worst-case scenario ending at this stage. And this weekend is part of the story.
A successful meeting on Sunday night in Greece will be another foothold the market can stand on in what has become a very hair-raising ascent. Greece simply can't afford to slip. Time is running out.
David Taylor
