Just when we thought the Greece financing fire was temporarily out, some embers still exist and it’s causing more uncertainty. The next issue Greece must tackle outside of implementing its own deficit plan is to set up a financing backstop in case they have difficulty in rolling over upcoming maturities which are rather large in the next two months. The hope was an EU agreement to provide it and to avoid the IMF in the process but today a German gov’t official said only the IMF has “the instruments to push for Greece to restore its capital markets access” if they end up needing it. The fear of the IMF is the tough austerity program they would expect and the stigma attached to the bailout. In response, Greek stocks are down for the 5th day in the last 6, lower by 3%, 5 yr CDS are wider by 10 bps, 10 yr bond yields are up by 13 bps and the 2 yr yield is up by 30 bps. The euro is lower too.
Feb CPI was flat m/o/m, .1% less than expected but the core rate was right in line up, .1%. Keeping a lid on the headline CPI was a 1.4% drop in gasoline prices which have since reversed higher. AAA last night said the avg gallon of gasoline rose to $2.88, the highest since Oct ’08. Owners Equivalent Rent, 24 % of CPI, was flat and this component has helped to subdue CPI as landlords lose pricing power in this environment. Apparel prices fell .7% but vehicle prices rose .4%. The y/o/y gain in CPI is 2.1% and 1.3% at the core. The headline reading is now in line with what the TIPS market has priced in over the next 5-10 years, about 2.2%. The Fed will take comfort in this data (however flawed) but what they are missing right now is the asset inflation their cheap money policy is causing all over again with the question only when, not if, it shows up in consumer price inflation statistics.
Initial Jobless Claims totaled 457k, 2k higher than expected but down from 462k last week. The 4 week average moved down to 471k from 476k. Continuing Claims rose by 12k and were 57k above forecasts. After moderating last week, Extended Benefits (data delayed by 2 weeks) rose a net 353k to a new high in this cycle. Thus, while initial claims have stabilized, the pace of new hiring’s is just not enough to absorb those new filings and today’s data on those who are still receiving extended benefits is discouraging.