Greek PM Talks Of ?Catastrophic? Debt Default ? Pound To Dollar Upside May Not Last

September 17, 2012 - Written by John Cameron

STORY LINK Greek PM Talks Of ?Catastrophic? Debt Default ? Pound To Dollar Upside May Not Last

Global stocks continued on their post-QE3 upward trajectory during Friday’s session, with London’s FTSE 100 ending the day up by over 1.5%. New York’s Dow Jones registered a less pronounced upward move on the session, ending the day only 0.40% higher than Thursday’s close, suggesting that the euphoria following the Fed’s announcement that it is set to pump $40bn of new money into the American economy each month on an ongoing basis, is beginning to die down.

The past 72 hours have provided several tangible reasons for investors to hold back on taking an all-out risk-positive stance. Perhaps the major nagging doubt at the back of market participants’ minds comes in the shape of the eurozone’s as yet unresolved debt crisis. Greece has been the epicentre of the rumbling funding sage and the country’s leader, Antonis Samaras, may have re-ignited the embers of the long-running stand-off between his state and Brussels when he spoke yesterday. Samaras commented in a newspaper interview that exiting the euro would be a ‘catastrophe’ for his country. His words served a dual purpose; firstly, they reminded German policymakers, who have spent much of the past two weeks arguing over the extent to which the Teutonic giant should assist the debt-ridden Hellenic state, just what a perilous situation Greece is in. Secondly, Samaras’ comment will act as a reminder that a Greek default is still a real possibility. Either way, Greece’s situation, and that of several other southern European states, retains the potential to trigger bouts of panic into the market at a moment’s notice, causing a rapid flight to safety from institutional investors which would see the US Dollar strongly supported.

Meanwhile, Friday’s session also provided a memo to speculators that global economic data releases retain the potential to shock. The latest UK construction sector data revealed that activity in Britain’s collective building industries had contracted by a massive 10.1% in the twelve months to July 2012. Things are far from rosy in the UK’s garden, and manifold problems remain unsolved in the global economy.

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