Asian Pacific markets closed mostly lower overnight. Traders trimmed their bullish positions in equities after European officials were left unimpressed by the latest Greek austerity plans that are needed in exchange for a new bailout. In addition, concerns were revived about the health of the global economy after the Reserve Bank of Australia trimmed its near-term growth and inflation forecasts. On top of this, trade data out of China showed imports slumped sharply in January and exports dipped for the first time since late 2009. Imports fell 15.3% year on year while exports slipped 0.5%. The drop in imports boosted the country’s trade surplus to $27.3bn from $16.5bn. It should be noted, however, that the numbers were significantly distorted by China’s New Year holiday last month. And for that reason, Chinese investors were unfazed as the leading Shanghai Composite Index eked out a small gain while other Asian Pacific markets closed lower. Hong Kong’s Hang Seng finished down 1.1%, Australia’s S&P/ASX fell 0.9% and Japan’s Nikkei slipped 0.6%.
European equities started the day lower as traders digested the implications of the latest Greek developments. Three main issues remain for the second bailout, which is worth €130 billion. Firstly, the austerity measures agreed yesterday between the Greek coalition and the troika needs the approval of the Greek parliament, and voting takes place on Sunday. Second, Athens must find an additional €325 million in cuts by Wednesday, when finance ministers of the euro area meet again. And finally, Greece must guarantee that these reforms will be fully implemented. These three elements need to be in place before any decision is made by the troika. The "haircut" issue is another problem which is still on-going. Private bondholders are being asked to accept a much larger write-down than they are comfortable with.
But the problem is that although a majority of the Greek people still want to remain in the euro zone, they are just fed up with austerity and don’t believe it is helping. Investors are also tired of Greek wrangling and are doing everything they can to divert the focus onto something else. Unfortunately the latest economic data out of China is another setback for the bulls. All eyes turn to the economic data out of the US this afternoon. Meanwhile it has been a mixed day in terms European data. The most important release was the UK Producer Price Index, which came out above forecast, raising fears that next week’s CPI will overshoot expectations. Both PPI input and output prices rose 0.5% in January, topping expectations of +0.4 and +0.1 percent, respectively. The data supports arguments that the Bank of England may have underestimated inflation after it increased quantitative easing by an additional £50 billion yesterday. From Europe, German Final CPI was unchanged at -0.4%, as expected; Swiss CPI also came in at -0.4% vs. -0.3%. French Industrial Production fell 1.4% in December, which was more than 0.8% expected. The Italian figure was surprisingly +1.4% on the month but -1.7% when compared with the same month a year earlier.