The big news today is that the Eurogroup and International Monetary Fund finally came to at least a tentative agreement over their bailout of Greece.
The deal reduces Greece's debt by 40 billion euros. The deficit reduction target is still set for 2020, but Greece will only have to get its debt to GDP ratio down to 124%, rather than 120%. International lenders have also agreed to reduce the interest rates for official loans, and defer maturities and interest rate payments on bonds for over 10 years. The European Central Bank will also return 11 billion euros of profit that it made by buying distressed Greek debt. These measures, as well as a bond buyback scheme, take a lot of the pressure off of Athens. Greece will also finally receive its long-overdue tranche of aid. It will get 34.2 billion euros next month, mainly for the purpose of recapitalizing Greek banks.
The debt buyback was the least fleshed-out part of the plan. The Eurogroup said that the buyback price for the bonds will not exceed the market price at Friday's close, so it is uncertain whether private investors will bite.
Markets on both sides of the pond rallied on news of the deal. In the US, index futures were mixed, but mainly pointed to a higher open. Dow
(INDEXDJX:.DJI) futures slipped 0.04% 12,931.00. S&P 500
(INDEXSP:.INX) futures rose 0.04% to 1,403.80, and Nasdaq
(INDEXNASDAQ:.IXIC) futures climbed 0.22% to 2,651.50.
The Organization for Economic Cooperation and Development (OECD) threw some cold water on the good sentiment. The Paris-based rich country club cut its forecast for global economic growth to 2.9% from 3.4%. Next year's expectation is for 3.4% growth, down from previous estimates of 4.2%. The think tank believes that Greece will remain in recession until 2015.
In response to today's developments, the OECD said that "automatic stabilizers," or welfare spending, in Greece might be necessary if the recession gets worse.
"The agreed consolidation measures should be put in place, but if growth proves lower than assumed in the government's fiscal plans, then the automatic stabilizers should be allowed to operate, even if this means missing the set targets," they said today.
New housing market data may show more improvement in home prices. Later this morning, Standard and Poor's will release its S&P Case/Shiller Home Price Index, which tracks home prices in 20 metropolitan areas. Economists expect the index to rise 0.4% in September after rising 0.5% in August. The Federal Housing Finance Agency's own index is expected to show a 0.5% monthly rise in September.
(NYSE:HPQ) is being sued by shareholders over its $8.8 billion write-down on its purchase of Autonomy Corp. H-P claimed that it bought the British software company based on fraudulent financial statements. The shareholder claims that H-P tried to back out of the deal before it went through.
(NASDAQ:AMZN) issued $3 billion in debt, taking advantage of rock-bottom interest rates. The money will be spent on general expenses, including a $1.16 billion corporate headquarters in Seattle.
(NASDAQ:FB) gained another 2.51% in the pre-market after an 8.09% rally yesterday after Bernstein, one of the most bearish research houses on Facebook, upgraded the social network's shares to outperform. Bernstein noted that analysts are underestimating Facebook's ad revenue growth, especially in the mobile arena, where it has lagged.
The European Union will follow America's lead in postponing introduction of the Basel III bank capital rules until six months after the Jan. 1 start date.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.