Greece Hits Target Charting China amp NFP Preview

The world’s largest sovereign default has just occurred as Greece restructures €206 billion in debt to qualify for a second bailout and meet its €14.5 billion payment on March 20. This has been achieved after private holders of 86% of Greek law debt accepted their bonds to be swapped into a combination of cash payment and longer term bonds. When including collective action clauses, the participation rate may rise to as high as 96%.

At 1pm GMT, the ISDA decides on whether the debt restructuring would qualify as a credit event in order to trigger payment to holders of $3.2 billion in net Greek CDS contracts. The figure, however, pales in comparison to the $163 billion of CDS protection taken out against Spain and $45 billion taken out against Ireland. Accordingly, reaction in CDS markets is likely to be contained.

Eurozone finance ministers could endorse the €130 billion package as early as Monday, followed by the IMF on Thursday. But what would become of the austerity policies on hand after the May elections usher a new government unwilling to implement/renegotiate the policies.

China’s inflation at 18-month low
China’s CPI slowed sharply in February, hitting an 18-month low of 3.2% from January’s 4.5%. The figures may be part of Beijing’s strategy to publicly anticipate lower growth targets, thus, relieving it from having to revalue its currency. This would especially be the case when the Fed would go into a new phase of quantitative easing.

Onto Non-farm Payrolls
Consensus expects non-farm payrolls +210,000, with estimates ranging between +180,000 and +275,000. The unemployment rate is seen unchanged at 8.3%, with estimates ranging from 8.1% to 8.5%. An NFP figure of +200K would make it the third consecutive monthly reading of +200K. The last time this occurred was in February-April 2011, a period coinciding with the April 2011 peak in equities and oil as markets were preoccupied that QE2 – due to end 2 months later (June 2011) – would not be renewed owing to improved data. Indeed, we could well be witnessing the same pattern as markets are already fretting from Bernanke’s hawkish references via the S&P500 inability to close above key technical levels 1370, last seen in May 2011.

A robust report is likely to trigger an initial rally in risk assets alongside the US currency, before potentially seeing a reversal in risk currencies and assets on eroding chances of an outright QE, at which point the USD would remain the last currency standing. A disappointing figure (NFP lower than 150K and/or unemployment rate above 8.1%), could unleash fresh selling on the weaker of the risk assets (copper and EUR).