Surprise US jobs boost stems state-loans panic
Analysts fear further market turmoil if sovereign debt problems are not solved
Published 06/02/2010 | 05:00
SURPRISINGLY good US unemployment figures stemmed what looked like near-panic on markets yesterday over the scale of government borrowings in the wake of the financial crash.
Problems that began in Greece spread to Asia yesterday morning, having affected market interest rates in Italy, Portugal and Spain along the way.
Some of the fear subsided after figures showing the jobless rate in the US unexpectedly dropped to 9.7pc in January.
More than half a million Americans found work, a labour report said. Manufacturers hired more workers for the first time in three years, expanded hours and boosted pay. But revisions to previous data increased the number of jobs lost in the recession to 8.4 million
In Europe, credit default swap prices for Greece and Portugal eased back, having broken new records in early trading. But many analysts fear further turmoil if credible solutions are not found to these countries' debt problems.
In Dublin, one trader in government debt said Irish interest rates might have risen by another quarter percentage point this week were it not for last month's €5bn borrowing by the National Treasury Management Agency (NTMA) from a syndicate of foreign and local banks.
The NTMA has already raised 40pc of the borrowings needed for this year, and has only €1.2bn of loans due for repayment in 2010. It will have to decide whether to go ahead with this month's €1bn auction for loans, given the state of the market.
"With regard to sovereign contagion, while much will depend on the response of Greece and the eurozone, we believe the rest of southern Europe and Ireland are considerably less vulnerable than Greece, given their lower government financing requirements," analysts at Goldman Sachs said.
But Greece may need funding from outside the markets, whether that be from the International Monetary Fund or EU institutions.
"Greece is likely to need financial help from non-commercial sources in the next few months," Eric Nielsen, Goldman Sachs chief European economist, said.
"If we are wrong in assuming that the contagion from Greece to the rest of southern Europe will be temporary and reasonably well-contained, the European Central Bank might adjust its policies to ease the financing, first by pausing in its exit strategy and, if needed, by reversing course and re-instating longer-term financing," he said.
The dollar continued Thursday's gains, benefiting from its safe haven status and hitting a new recent high against the euro of $1.3596.
European markets were not helped by a surprise 2.6pc fall in German industrial output in December.