As the US market was closed, the focus was on the EU meeting about the second bailout package for Greece. While EU ministers and investors appeared confident that a deal should be finalized after the meeting, the situation is not without uncertainty. Oil prices surged for another day amid rising speculations that Iran would halt oil supply to some European countries. While the UK and the EU said the impact on them would not be great, the market remained worried about the disruption, and particularly further escalation of the tension.
Regarding the chance of approving the new rescue fund to debt-ridden Greece, German Finance Minister Schaeuble stated that 'We've set out to wrap up the decision on a new aid program for Greece. I'm confident' while Eurogroup Chairman Juncker said 'I'd like to assume that we will come to a final and definitive agreement tonight'. Yet, it's reported that the IMF remained insistent on a guarantee that Greece's debt would not exceed 120% of GDP in 2020, compared with some EU governments' demand for 123-125% of GDP. If the IMF insists on it, then actions by the ECB and Eurosystem central banks may have to be done and Greece will have to agree on more fiscal consolidation measures. Otherwise, even larger write-down of existing debt, probably via further alteration of the terms of the PSI would have to be done.
Tensions over Iran have not eased although the Iranian side sent a letter requesting negotiation. Alireza Nikzad Rahbar, a spokesman of the oil ministry stated that Iran 'will give its crude oil to new customers instead of French and U.K. companies'. Meanwhile, a Iranian news agency stated that the country's oil supply to China will increase soon. Such action may trigger oil prices to rise further as EU countries are big buyers of oil from Iran. According to the DOE/EIA, EU countries bought a total of 18%of Iran's exports of crude and condensates in 1H11.
The RBA released minutes for the February meeting in Asian morning. The central banks stated that 'while the financial situation in Europe remained fragile, the likelihood of an extremely bad outcome seemed to have diminished somewhat'. The RBA left the cash rate unchanged at 4.25%, in contrast with consensus of a cut to 4.00%, as policymakers expected growth to be 'close to trend and inflation consistent with the target'. Yet, the central bank pledged to ease monetary policy further if demands 'weaken materially'.