Breaking Wall Street Market News & Reports

Markets are in euphoria as stocks held onto their gains for the first trading day of February. This is extending the impressive rally in January, following a handful of positive economic news from Europe and China in addition to news that Greece and its private creditors may only be hours away from a deal. BUT, several hours later, we are still waiting for the 70% haircut “really slice” of Greece’s forgiven debt  burden. On Tuesday, the S&P triggered a “golden cross,” meaning its 50-day moving average rose above its 200-day average. That is seen as the signal of an uptrend, but some analysts see it more as a psychological positive, confirming a move, rather than as a major signal.

For the month of January, the Dow rallied 3.4 percent, the S&P 500 jumped 4.36 percent, and the NASDAQ surged 8.01 percent. All three major indexes posted their best month since last October, while the Dow and S&P logged their best January since 1997.

US and World Economic Data

The pace of growth in the U.S. manufacturing sector rose to 54.1 in January, to its highest level since June, according to the Institute for Supply Management. Economists had expected a reading of 54.4, according to a Reuters poll. Still, a reading above 50 indicates an expansion of the U.S. manufacturing sector. Construction spending gained 1.5 percent in December, logging its fifth consecutive monthly gain, according to the Commerce Department.

China’s factory sector expanded in January, supporting hopes the world’s second-biggest economy will avoid a hard landing.

Greece Debt Deal

Greek Finance Minister Evangelos Venizelos said talks between Athens and its private creditors were “one formal step away” from a deal needed to avoid a messy default. Greece is locked in two sets of talks— one with private creditors to have them take losses on their bondholdings and the other with its international bailout rescuers to receive new loans. 

“We are at a crucial point in developments. In the coming days, the agreements must be completed” for the bond swap and a second €130 billion ($171 billion) bailout package, government spokesman Pantelis Kapsis said. Debt inspectors from the European Commission, European Central Bank and the International Monetary Fund, known as the troika, are in Athens for talks on the second rescue package, which is tied to an agreement with private creditors to accept losses on Greek bonds they hold. The success of the bond deal, however, also depends on the outcome of the bailout talks.

The bond swap, known as the Private Sector Involvement, or PSI, will see private creditors swap the bonds they hold with new ones worth half their original face value, longer repayment times and lower interest rates. They will also get a €30 billion cash sweetener — to be taken from the €130 billion bailout — for accepting the deal. Once secured, the PSI will cut €100 billion off Greece’s national debt.

Overall, the investors participating in the deal will face a loss on their bondholdings of more than 70 percent, Finance Minister Evangelos Venizelos said in a Parliament committee meeting Tuesday night. The official offering of the new bonds will come by Feb. 13, Venizelos said. Greece is running out of time, as it faces a €14.5 billion bond redemption on March 20 that it cannot afford to pay without additional help. A default would spell disaster for the country and destabilize European and global markets.

Both deals will need the agreement of the heads of the three political parties in Greece’s interim coalition, Kapsis said, and Prime Minister Lucas Papademos was to call the party heads to a meeting to sign off on them and required austerity measures. Chief IMF inspector Poul Thomsen also said a deal was close, but pressed the recession-plagued country to lower employment costs and even slash the minimum wage to make the economy more competitive.

On the contrary the European Central Bank is likely to refuse to show its hand on how it will help cut Greece’s debt burden until private investors and the government have agreed to a deal. While Greece’s creditors are increasing pressure on the ECB to join the bond swap being negotiated with the country, central bankers have remained silent on their intentions. Economists say the ECB wants to see the private-sector agreement concluded before indicating its strategy, which may include forgoing profits from its Greek bonds or a transfer to one of the region’s rescue funds.