1. World Bank Warns of Slower Global Growth in 2012
The World Bank warned that 2012 will be a rough one, and warned developing nations to prepare for the worst and that the potential for a global crisis similar to 2008-2009 is evident in the euro-zone sovereign debt crisis situation.
From Bloomberg: The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, the Washington-based institution said. The euro area may contract 0.3 percent, compared with a previous estimate of a 1.8 percent gain. The U.S. growth outlook was cut to 2.2 percent from 2.9 percent.
Turmoil in European still has the potential to trigger a global financial crisis reminiscent of 2008, according to the World Bank.
China, the world's second-biggest economy, reported today that foreign direct investment declined in December by the most since July 2009, underscoring the World Bank's warning that developing economies should prepare for the worst.
2. IMF to Ask BRICs, Oil Producers, Japan to Top Off Lending Capacity
In a bit of news that helped prop up risk sentiment the IMF is said to again be asking countries to top off their contributions to it, thereby increasing its lending capacity. However, the initial $1 trillion figure was lowered to $500 billion.
From Financial Times: The euro was propelled higher mid-session and European stocks reversed early losses following reports the International Monetary Fund would increase its lending resources by one trillion dollars.
Traders seem to be betting that such fire-power for the IMF reduces the chances of eurozone debt contagion causing turmoil in the region's banking system and hobbling the continent's economy.
But the rally faltered after subsequent reports said that the $1tn figure referred to the IMF's 2-year funding gap and that proposals to raise $500bn were under discussion.
3. Portugal Bill Auction Sees Yields Lower, But 10-Year Moves to Default Territory
We had a bill auction for Portugal, the first since April of last year, and while yields were lower, it was unable to meet its maximum target.
From CNBC: Portugal sold 2.5 billion euros ($3.18 billion) of treasury bills on Wednesday, with yields mostly lower, in the country's biggest debt sale since it sought a bailout last year, even as bond yields hovered near all-time highs.
Yields on 3-month bills were unchanged from the last auction at 4.346 percent, while 6-month bills were issued at an average yield of 4.740 percent, down from 5.250 percent the last time similar bills were sold in November, the IGCP debt agency said.
Demand outstripped the amount offered by 4.1 times on the 3-month bills, 3.0 times on 6-month bills and 2.1 times on the 11-month bills. The IGCP had offered up to a total of 2.5 billion euros of the three treasury bills.
Also we see that Portugal's 10-year yields has moved into default territory, something to keep an eye on considering the negotiations ongoing to write down Greek debt.
From Financial Times: Portugal is trading in default territory after investors offloaded the country's bonds this week amid rising fears of contagion, hurting a government debt auction on Wednesday. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens' debt.
Portuguese 10-year bond yields, which have an inverse relationship with prices, jumped to a new euro-era high of 14.40 per cent in London on Wednesday. Before the S&P two-notch downgrade late on Friday, yields were trading at 12.45 per cent.
Portugal on Wednesday sold €1.25bn of 11-month bills, €754m of six-month notes and €496m of three-month notes, lower than the €2bn to €2.5bn targeted by the government debt agency. Portugal does not have a bond maturing until June, when €10bn is due for repayment. Its borrowing needs are also modest at €17.5bn.
4. What the State of Greek Debt Restructuring Talks?
There was some reporting that the Greek debt restructuring negotiations were perhaps gaining some momentum, but so far still nothing officials. This will be an important development to monitor this week, to see if a voluntary restructuring can be accomplished.
From Bloomberg: Greece and its private creditors are beginning a final push to renegotiate debt as a member of the investor group said they are likely to get cash and securities with a market value of about 32 cents per euro of government bonds.
I'm highly confident the deal will get done, Bruce Richards, chief executive officer of New York-based Marathon Asset Management LP, said in a telephone interview yesterday with Bloomberg Businessweek.
There are still obstacles to concluding what negotiators term a consensual restructuring.
From The Telegraph: Sources close to the bondholders told The Daily Telegraph there was enough movement from officials representing Greece, the International Monetary Fund (IMF), European Central Bank (ECB) and the European Union (EU) to persuade Mr Dallara to meet with them.
Bondholders are resisting pressure to take losses of more than 50pc on their bonds. They are also pushing for higher coupons on fresh Greek paper.
If not, Greece has warned of imposing coersive writedowns on creditors.
From NY Times: Taking direct aim at hedge funds and other private holders of Greece's debt, Prime Minister Lucas Papademos says he will consider legislation forcing the creditors to take losses on their holdings if no agreement can be reached in critical negotiations scheduled to resume Wednesday.
Mr. Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion from Greece's unwieldy $450 billion debt, the country would consider passing a law to require holdouts to take losses.
Many private investors, like hedge funds, pension funds and banks, would just as soon see an involuntary default, because much of their holdings are insured through credit default swaps. But European leaders are dead set against such a credit event, which could ignite a chain reaction with unpredictable and potentially catastrophic results for the world financial system.