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business newsMidday Market Report: ECB Move Triggers CDS Fears
By
Vincent Trivett
Feb 17, 2012 2:00 pm
Is the ECB signaling that a Greek default is likely?
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Yesterday, it was confirmed that the European Central Bank will swap its holdings of Greek debt for more Greek debt with a special clause that protects the ECB from losses in the event of involuntary write-downs.
If too few private bondholders refuse to participate in the voluntary write-downs (we are looking at about 70% off of net present value), a collective action clause will be triggered that will force losses on everyone.
Except the ECB. Clearly the bank finds the likelihood of this to be serious enough to seek preferential treatment. Investors are reading this as a crystal-clear sign that Greece is going under.
Involuntary write-down from principal falls safely into the textbook definition of a sovereign default. A default would trigger credit default swaps on Greek debt. It isn’t hard to imagine a situation where the bondholders that are refusing to take write-downs might actually be the same ones that took out CDS betting on a Greek default.
European markets are still showing optimism that the whole thing will be over on Monday.
- The FTSE 100 (^FTSE) rose 0.33% to 5,905.07.
- The DAX (^GDAXI) gained 1.42% to 6,848.03.
- The CAC (^FCHI) rose 1.37% to 3,439.62.
US stocks, on the other hand, are mixed today.
- The Dow (^DJI) rose 0.26% to 12.937.61.
- The S&P 500 (SPY) was almost flat, gaining only 0.06% to 1,358.91.
- The NASDAQ (^IXIC) fell 0.36% to 2,949.30.
Ketchup industry behemoth HJ Heinz (HNZ) also reported better than expected earnings as consumers in emerging markets increasingly crave the company’s eponymous red colloidal condiment. Emerging markets accounted for 20% of the firm’s revenue, offsetting higher commodity prices and sluggish growth in North America. Shares of Heinz are up 4.72%.
Campbell Soup (CPB) shares rose 3.56% after the company delivered better than expected earnings of $0.64 per share.
Workers at Apple (AAPL) contractor Foxconn said that the company has raised wages at its Chinese plants by as much as 25%. Foxconn has come under fire for its labor practices and the disturbing number of its workers who commit suicide.
And finally, the House approved the extension of the payroll tax cut. Unemployment benefits will max out at 63 weeks, down from 99 weeks. Unemployed residents of states with high unemployment will be able claim benefits for 73 weeks. To pay for this, Congress will auction off a portion of the broadcast spectrum for wireless carriers and require civilian federal employees to pay more for their pensions.
And in hopes that Greece might not hog the headlines for much longer, here is an appropriately titled bit of listening for the weekend.
Twitter: @vincent_trivett
No positions in stocks mentioned.
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