Speculation of Successful Greek Deal Leads Stocks Higher

Markets continued their rally again today, gaining over 1% on hopes that the Greek debt swap deal would reach a happy conclusion. Official reports currently indicate that 85% of private creditors have agreed to take a 53.5% write down on the principal of their bond holdings. Greece will announce the total participation for the swap tomorrow.

The European Central Bank (ECB), Bank of England (BOE), and Bank of Canada (BOC) all kept their benchmark interest rates unchanged, widely expected moves after historic measures of liquidity have been pumped into the system. Chairman Draghi was a little more hawkish on inflation as the ECB raised its inflation estimates above its mandate of 2% for the next two years.

Coffee maker Starbucks (SBUX) introduced a new single-serving coffee machine, causing the stock to rise. Green Mountain Coffee Roaster (GMCR), the leading producer of single-servings of coffee, fell over 25% after hours.

The long-awaited nonfarm payrolls will be released tomorrow. Economists expect a growth of 210,000 nonfarm jobs and private sector growth of 220,000 jobs. Markets have rallied on the expectations that this number will beat estimates due to the abnormally warmer weather.

The total Greek debt swap participation will be released at 6:00 a.m. GMT and the Greek finance minister will hold a press conference at 11:00 a.m. GMT. European finance ministers will also meet to decide on what further steps are necessary in Greece.


Argentina says can rebuild reserves used to pay debt

By Magdalena Morales andHilary Burke
BUENOS AIRES, March 7 (Reuters) – Argentina can gradually replenish foreign exchange reserves it has used to pay government debt, the central bank chief said on Wednesday, signaling that the monetary authority will keep buyingbillions of dollars on the local market.

Latin America’s No. 3 economy has boomed in most of the last nine years thanks to hefty public spending, high grains prices and consumer demand. But as a slowdown takes hold, and the trade and budgetsurpluses shrink, the government is moving to free up more reserves to repay creditors for a third straight year.

This year’s budget earmarks up to $5.7 billion in “excess” reserves to repay private creditors, but under current rules, there areno excess reserves to be had. (news)
For that reason, the government is backing a bill to reform the central bank charter that loosens the definition of excess reserves, clearing the way for continued high spending to spur economicgrowth – even at the expense of double-digit inflation.

“The central bank is in a position to recover these reserves gradually,” central bank chief Mercedes Marco del Pont told legislators as she defended the charter reform, which analysts expect Congress to pass easily.

The central bank has bought roughly $2.1 billion on the local market since the start of 2012 to bulk up its foreign reserves, which have nonetheless fallen by nearly $6 billion since hitting a record high of $52.7billion in January 2011.

In the past two years, the administration tapped about $16 billion of central bank reserves to pay debt.

Critics say the use of more reserves for this purpose will further exacerbate inflation, which independenteconomists estimate at between 20 and 25 percent annually. Government inflation data is widely discredited and is consistently lower, at around 10 percent, than private estimates.

Under the current central bank charter, “freely available” orexcess reserves are defined as those that surpass the monetary base, or the level needed to back up cash in the economy. There are no excess reserves now, using this criteria.

Marco del Pont said there was no reason for this level of reserves to be linked to money supply measures, saying that instead the central bank’s board should keep watch over external accounts to determine what cushion is needed to ensure volatility can be averted in the foreign exchange market.

Argentina’s central bank intervenes nearly every day in the local currency market to ensure there is no abrupt swing in the value of the peso <ARS=RASL>.

Critics say dollar purchases on the market are inflationary and also warn that the peso may not have enoughbacking in terms of reserves under the proposed new rules.

(Additional reporting by Luis Andres Henao; Editing by James Dalgleish) Messaging:hilary.burke.thomsonreuters.com@reuters.net)

EU CRISIS ROAD MAP: Key Milestones Ahead

LONDON (Dow Jones)–Greece on Friday will formally launch its bond-swap offer to private creditors but doubts remain over the durability of Greece’s EUR130 billion ($173 billion) rescue deal, while a Group of 20 weekend meeting of finance ministers and central bank governors could increase the pressure on European governments to put up more money to guard against new trouble.

Members of the G-20 advanced and developing economies will discuss a proposal to more double the lending capacity of the International Monetary Fund to $1 trillion, which still needs to determine its contribution to the Greek bailout at a board meeting, expected in the second week of March.

The Greek bailout deal sealed earlier this week still faces several hurdles, including parliamentary approvals in Germany, Austria, Finland and the Netherlands.

It also hinges on the successful completion of the bond swap as part of a massive debt restructuring plan. The debt exchange calls for private investors to waive 53.5% of their principal, cutting Greece’s outstanding debt stock by EUR107 billion.

Greece hopes to complete the debt exchange by early April and possibly call new elections soon afterward.

This is the known worry list:

–Friday, Feb. 24: Italian bond auction. Greece to formally launch debt swap offer.

–Saturday, Feb. 25: Group of 20 finance ministers, central-bank governors meet.

–Monday, Feb. 27: Belgian bond auction, Italian T-bill auction. German lower house extraordinary session to vote on Greek bailout.

–Tuesday, Feb. 28: Italian bond auction. Date by which analysts expect decision by the Irish attorney general on whether it will have to schedule a public referendum on the European Union’s new treaty. Finnish Parliament to vote on Greek bailout program.

–Wednesday, Feb. 29: Allotment of ECB three-month, three-year long-term refinancing operations. EUR10.6 billion of Italian CTZ bonds mature. German bond auction.

–Thursday, March 1: Euro-zone finance ministers meet. EUR14.9 billion of Italian BTP and EUR12.3 billion CCT bonds mature. Euro-zone February manufacturing PMI data. Spanish and French bond auctions.

–Thursday, March 1-Friday, March 2: E.U. leaders’ summit.

–Monday, March 5: Euro-zone February services PMI data.

–Tuesday, March 6: Revised E.U. fourth-quarter GDP growth data.

–Wednesday, March 7: German bond auction.

–Thursday, March 8: ECB interest rate decision. German January industrial production data. Expected date for Greek PSI offer.

–Monday, March 12: Euro-zone finance ministers meet. Greece aims to complete PSI by this date.

–Tuesday, March 13: German March ZEW economic sentiment indicator. Italian and Greek T-bill auctions.

–Wednesday, March 14: Italian bond auction.

–Thursday, March 15: Spanish and French bond auctions.

–Tuesday, March 20: EUR14.4 billion of Greek government bonds mature. Spanish and Greek T-bill auctions.

–Wednesday, March 21: German bond auction.

–Thursday, March 22: Flash euro zone March PMI data.

–Monday, March 26: German March Ifo business climate index. Belgium bond auction.

–Tuesday, March 27: Spanish T-bill auction. Italian bond auction.

–Wednesday, March 28: Allotment of ECB three-month long-term refinancing operation. Italian T-bill auction.

–Thursday, March 29: Italian bond auction.

–Friday, March 30: Euro zone finance ministers meet.

-By Jenny Paris and William Kemble-Diaz, Dow Jones Newswires; 44-20-78429347; william.kemble-diaz@dowjones.com

–Emese Bartha, David Roman, Neelabh Chaturvedi, Alkman Granitsas, Patricia Kowsmann and Eamon Quinn contributed to this article.

HIGHLIGHTS-Euro zone ministers, officials before Greek talks

BRUSSELS, Feb 20 (Reuters) – Euro zone finance ministers and officials arrived on Monday to discuss a second bailout package for Greece. They were expected to approve a package of aid to draw a line under months of turmoil that has shaken thecurrency bloc. But technical issues remained outstanding before the meeting.

Following are comments by ministers and officials before the talks:
“I would like to assume that we can reach final and concluding negotiations today. The Greek side has fulfilled many preparatory efforts we had demanded. We have to conclude today, there’s no more time to waste.

“There are stillquestions as to how much the public sector can contribute and how we will handle the issue of private creditors in detail, and we will have to talk about the total volume of the second programme. We can’t exceed 130 billion.”

ON GREEK EFFORTS: “Greece has obviously made significant efforts, and now we need to continue the work and that the entirety of the elements, particularly furnished by the other parties, are also put into place.”

ON HOPES FOR A DEAL ON MONDAY: “We are here, ready to conclude today this long process on the new Greek programme, and also we are ready to initiate the official procedure on the PSI(private sector involvement). I am optimistic, but in any case we need the clear political approval from the Eurogroup.”

ON PROSPECTS FOR AN AGREEMENT ON MONDAY: “If there weren’t anythingto discuss we wouldn’t have a meeting…Today we are aiming to finalise the decision on a new rescue package for Greece. The state secretaries have prepared it well but there are still some details we have to talk about.

“We still need clarity on the involvement of private creditors about a programme to make sure that Greece will not exceed a debt level of 120 percent of GDP by the year 2020. There is still some work to do and we have to make sure that the programme is implemented. I’mconfident.”

ON GREEK REFORMS: “There will be an intensive debate about the monitoring and how we can see whether Greece can implement what we have agreed. If Greece does not implement themeasures we have asked for then it won’t be able to return to growth. The most important is for Greece to grow, that the administration becomes more efficient and leaner, that jobs are created. Only then Greece can recover.”

ONMONITORING: “We will confer about how this is done, on the one hand by a permanent monitoring in view of the implementation of the measures and also a check on where the money is going. It should not happen again, what happened in the past, thatbillions go to Greece and it is put into consumption and that no infrastructure, no modernisation of the state and no regional development is created.”

ON THE FUNDING GAP: “We will talk about this, and also about whether there will be more support from PSI. We don’t know how many will take part yet, and also how the gap will be filled by national banks or the European Central Bank (ECB). Looking at the official side, I believe states can’t make any more taxes available, thatwould overburden the states. We would have problems getting that through parliament.”

ON MONITORING GREEK REFORMS: “It’s important for us that we introduce monitoring…a system ofsupervision which ensures that, together with the Greeks, this programme is implemented after the elections.”

ON PROSPECTS FOR AN AGREEMENT ON MONDAY: “Today we have all the elements weneed to reach a deal. It’s like a puzzle. All the pieces are on the table; what’s needed now is to put them together and that we will try to do this afternoon.”

ON REFORM IN GREECE: “Greece, through its parliament and the coalition,has made the commitments which we expected of it. Greece will have to continue down this path toward control over its own structural reforms, and we, in our role as creditors, will have to continue to accompany it. This is the point of the meeting.

“We have a chance tonight to present a fixed picture of what is needed to accompany Greece forward in its new programme.”

ON GREECE’S IMPLEMENTATION OF REFORMS: “Greece, in principle,has done everything that was needed. It is important how it will be in the future. Guarantees of implementation of pledges will be important.

“The biggest problem, very likely, will be whether the two parameters debt of around 120 percent of GDPand a 130 billion euro cap (on an aid package) will be preserved.”

ON GREECE’S IMPLEMENTATION OF PLEDGES: “There are many risks. The biggest one, very likely, is the relevance of this commitment after Greece’s upcoming election.”

(Reporting by Robert-Jan Bartunet, Ben Deighton, Annika Breidthardt, John O’Donnell, Charlie Dunmore, Martin Santa and Nicholas Vinocur. Editing by Sebastian Moffett.)

ECB Leaves Interest Rates Unchanged As Expected – DJ

FRANKFURT — The European Central Bank left its main interest rate unchanged for a second straight month Thursday, amid signs that the euro-zone economy is stabilizing and Greece’s government may be nearing a deal with creditors that would avoid a messy default.

The decision to leave rates at a record low 1% confirms the forecast of almost all analysts surveyed by Dow Jones Newswires, who had expected the ECB to hold fire after its recent robust policy steps helped restore calm to markets.

Borrowing costs of non-core euro-zone countries such as Spain and Italy have fallen sharply in recent weeks, a sign of easing market tensions since the ECB injected nearly half a trillion euros into the banking system in December via its first-ever three-year loans.

Attention will now turn to the press briefing at 1330 GMT, where ECB President Mario Draghi is likely to face questions on the economic outlook and, above all, on the ECB’s possible participation in a Greek bond swap.

With Greece’s government still in talks with its private creditors over a second, EUR130 billion bailout, it seems increasingly likely that public creditors, particularly the ECB, will have to share the pain.

At last month’s rate decision Draghi said the ECB wasn’t involved in the talks with private creditors and would only “make up [its] mind” once those talks concluded.

The Wall Street Journal reported Tuesday, however, that the ECB has agreed to exchange the Greek bonds it purchased last year at a price below face value, provided the restructuring talks are successful. Draghi is likely to be grilled Thursday on how the ECB would participate in a restructuring and whether it stands to lose profits.

Investors will also watch closely for signs of future policy easing. Although the ECB has never cut rates below 1%, even after the collapse of Lehman Brothers, roughly half of the analysts surveyed by Dow Jones expected that to happen before October.

Draghi is unlikely to signal an imminent rate cut Thursday, amid signs that the euro-zone economy is stabilizing and inflation remains stubbornly high.

Recent economic data have been bumpy but generally more positive. In Germany, Europe’s largest economy, unemployment hit yet another record low last month, while Ifo’s closely-watched business confidence indicator rose for a third straight month.

The picture is less rosy in Southern Europe, where economies including Spain and Greece face a brutal contraction this year. But overall, composite euro-zone purchasing managers indexes in January pointed to very modest growth.

Draghi is likely to repeat that he sees “tentative signs of stabilization at a low level” in the euro-zone economy, despite “significant downside risks.”

Although inflation held steady at 2.7% in January, clearly above the ECB’s target of just below 2%, the new president is likely to say it “will probably stay above 2% for several months to come, before declining to below 2%,” his refrain since he took over in November.

Nor is Draghi likely to announce any new unconventional measures this time. Draghi has stressed repeatedly in recent weeks that the central bank’s three-year loan measure has already helped avert a major funding crisis.

But Draghi is expected to explain changes the central bank has made to its collateral framework to make conditions even more favorable for banks to tap the next three-year operation, due at the end of February.

-By Tom Fairless, Dow Jones Newswires, tom.fairless@dowjones.com; +49 69 29725 505

ECB holds rates

FRANKFURT, Feb 9 (Reuters) – The European Central Bank leftinterest rates unchanged on Thursday and financial markets’ attention will now shift to whether the bank is ready to help Greece avoid a messy default.

The ECB left its main interest rate on hold at 1.0 percent, adopting a ‘wait-and-see’ modeafter some recent promising economic reports suggested the euro zone may be over the worst of a winter downturn.

“This is as expected,” said ING economist Carsten Brzeski.

“All eyes will be on Greece and the role of the ECB,” he said of ECB President Mario Draghi’s 1330 GMT news conference.

ECB policymakers remained divided on Wednesday on what contribution the bank could make to a restructuring of Greece’s sovereign debt, two euro zone monetary policy sources said.

With Greek leaders failing early on Thursday to agree on reforms and austerity measures, the price of a bailout, Draghi may say little on what, if anything, the ECB is ready to do.

While the ECB has ruled out joining private creditors in voluntarilyaccepting a reduction in Greek bonds’ value, it could send Athens, via a roundabout route, the profits from bonds it bought at below face value. (news)
Some ECB policymakers are reluctant for the bank to show a willingness to share inthe restructuring burden for fear of easing the pressure on Athens to agree spending cuts. The ECB is also prisoner to the Maastricht Treaty, which forbids the central bank from financing governments.

“The question is whether ECB independence has a price tag.” said Brzeski. “I think that the ECB taking a loss is out of the question – I’m looking for this to be confirmed, and maybe opening the door to eventually not taking a profit.” <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For multimedia coverage on the Euro Zone Crisis
For a package of graphics on the ECB, click on: http://link.reuters.com/neg32s
Forgraphic of euro zone liquidity levels click: http://link.reuters.com/qeq25s
For graphic of ECB government bond buying: http://link.reuters.com/nak93s

With the threat of a Greek insolvency casting a long shadow across the euro zone, Draghi will not go as far as some economists and declare the crisis over, even if the bloc turns out to be over the most acute phase of its economic slump.

Since the beginning of the year, some business surveys have instilled hope that the worst of the sovereign debt crisis has blown over and the euro zone economy is perking up. But there is enough doubt to keep the ECB watchful.

Europeanstock markets and the euro extended two months of gains on Thursday as Greece edged closer to a bailout deal and investors bet a brace of central bank meetings would offer further support for the move into riskier assets.(news)
However,with the ECB having warned of substantial downside risks to growth and the economy only slowly pulling off the ropes, the central bank could signal further easing is underway.

A Reuters poll of economists conducted before Thursday’s policydecision showed 41 of 71 respondents expected the ECB would cut by its March meeting. (news)
Some other analysts say that as the March 8 meeting comes soon after the ECB’s Feb. 29 second three-year liquidity operation, the bank will want to wait longer than that before touching rates, which it has not previously cut below 1.0 percent.

The central bank funnelled banks 489 billion euros at a first three-year ultra-cheap loan operation in December, and is expected to refrain fromannouncing new measures while it waits to see how the February operation goes.

Francesco Papadia, a top ECB official, said on Wednesday bank liquidity concerns had all but disappeared thanks to the ECB’s December three-year loans, adding that hewas tempted to declare ‘mission accomplished’.

Analysts also said the central bank could relax a bit.

With unlimited central bank liquidity, the ECB has pushed overnight market rates well below its main refinancing rate and its depositrate, currently at 0.25 percent, acts as a floor for money markets.

Were Draghi to omit the word ‘substantial’ from the downside risks the ECB sees, this would be taken as indicating a smaller chance of a future rate cut.

More likely isthat the ECB will make few changes to the wording of its policy statement as there are mixed messages in the data, with the latest monetary figures dismal.

“While the ECB will be in ‘wait and see’ mode for another month, ahead of the secondthree-year LTRO and the updated ECB staff projections in March, we expect today’s statement and press conference to leave the door open to a March rate cut, which is our baseline scenario as additional insurance is taken out against weaker growth,”said RBS economist Nick Matthews.

(Reporting by Sakari Suoninen. Editing by Jeremy Gaunt.) Messaging: sakari.suoninen.thomsonreuters.com@reuters.net)

European Debt Insurance Costs Lower, Greek Talks Progress

LONDON (Dow Jones)–The cost of insuring European debt against default was lower in early trading Wednesday, as important progress has reportedly been made in negotiations over Greece’s debt restructuring.

At around 0745 GMT, the SovX Western Europe index, which investors can use to buy or sell credit default swaps on a basket of 15 sovereign borrowers, was at 313.5/318 basis points, three basis points tighter from Tuesday’s close, according to data-provider Markit.

Credit default swaps are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.

The iTraxx Europe index, which comprises 125 high-grade borrowers, 25 of which are banks and insurers, was 1.3 basis point tighter at 126/127 basis points. The Crossover index of 40 mostly sub-investment-grade European corporate borrowers was eight basis points tighter at 544/547 basis points.

The Wall Street Journal reported the European Central Bank was ready to exchange its holdings in Greek government bonds with the European Financial Stability Facility at a discounted price.

The move from the ECB smoothes negotiations over a restructuring of Greek debt held by private creditors and helps to ease Greece’s liabilities for the future.

Greece’s political parties must now agree to a further round of austerity measures to unblock the EUR130 billion bailout package it agreed with the ECB, the European Commission and the International Monetary Fund, amid widespread popular protests.

Amid sparse economic data, Germany will sell Wednesday up to EUR4 billion of its 0.75% bond maturing in February 2017.

-By Serena Ruffoni, Dow Jones Newswires; +44 (0) 207 842 9349; serena.ruffoni@dowjones.com