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–Move Could Presage Early Elections If Bailout Deal Is Rejected

Athens (MNI) – Greece’s Prime Minister George Papandreou said on
Monday that he will hold a referendum on the new EU bailout deal,
hinting that early elections are possible if the referendum fails to win
voters’ approval.

Papandreou’s decision, which was unexpected, came after a new
plunge in the government’s approval rating and amid mounting civil
unrest. In the latest opinion poll, published Sunday, 60% of the Greek
people said they disapproved of the new bailout plan unveiled after the
Eurozone leaders’ summit last Thursday. Only 15% said they approved of
how the government was handling the crisis.

Speaking Monday evening to his party’s members of parliament,
Papandreou said the Greek people should be the ones to approve or reject
the new deal.

Immediately after his announcement, all the opposition party
leaders demanded early elections, accusing Papandreou of plotting his
personal exit and of failing to consider that the referendum, expected
to take place in January, would drag Greece into a prolonged
pre-election mode.

Last Thursday, EMU leaders agreed to a second bailout plan for
Greece, including a 50% write-down on the country’s privately held debt
and E130 billion in new public money. However, the details of the
private sector haircut have not yet been decided and are not expected to
be settled until at least the end of the year. Negotiations with
Greece’s private creditors, represented by the Institute of
International Finance, a global association of banks, started today.

It remains to be seen how the referendum will affect the
negotiations between the EU and the bankers.

Papandreou also said he would ask for a vote of confidence to
secure support for his policy for the remainder of his four-year term,
which expires in 2013.

Debate on the confidence motion will begin on Wednesday, with a
voice vote set for Friday. The main opposition party, New Democracy,
said it would not participate in the three-day vote of confidence
debate.

Papandreou’s ruling Socialist PASOK party has a fragile majority of
153 out of 300 parliamentary seats.

Several MPs have challenged the legality of the referendum, arguing
that the Greek constitution allows such measures only on matters of
great national importance. For instance, the last referendum took place
December 1974 when the Greeks voted to abolish the monarchy and
establish a republic, following the collapse of the junta.

–Athens Bureau, Angelika Papamiltadou; a_papamiltiadou@hotmail.com

[TOPICS: M$X$$$,M$Y$$$,MGX$$$,MT$$$$,M$$CR$]

There is still a bit of lingering doubt but the consensus opinion would seem to be that the RBA will cut rates by 25 bps today and leave the way open for another 25 bps cut in February or March of next year.

If AUD/USD is still trading near 1.0550 when the announcement is made, then I’d expect to see a test of support at 1.0500 on a 25bps cut. If there is no rate cut, then I’d expect to see a 100 pip rally as disappointed bears are forced to cover.

All of the recent data from the Japanese retail trading sector told us that the average punter was long USD/JPY, EUR/JPY and AUD/JPY. Prime brokers have been telling us that the big hedge funds were heavily long USD/JPY, both in the spot market and through the options market. Japanese exporters were being faced with a USD/JPY rate close to 75JPY and that was really hurting their competitiveness. True some recent futures data suggested that CTAs were long Yen futures, but that is but a miniscule part of the whole equation.

The BOJ action had the effect of giving professional and retail speculators as well as Japanese exporters, a free ride. Little wonder that the BOJ was able to buy $30billion at one rate, 79.20. All of this intervention will be paid for with new money, there will be no sanitisation, so we print more money to guarantee the speculators a good day. I know a lot of our readers made a lot of money yesterday, but this cannot bode well for the future stability of the financial markets.

Heavy month-end buying of the GBP, stops getting triggered below .8730 and further GBP buying supposedly related to the MF Global bankruptcy. Take your pick, or a combination of all 3 succeeded insending the GBP soaring. The two interbank reports that I’ve read so far think that these were one-off events and not the start of any major GBP uptrend.

What is becoming very noticeable is that the amounts being traded in the FX market in recent days is really rocketing.

http://www3.boj.or.jp/market/en/menu.htm

Current estimates suggest that the Japanese authorities bought between $100/$125 billion USD against the JPY during yesterday’s intervention and only stopped because they ran out of credit lines with the major banks. Unheard of amounts to only move the market 300 pips!

As I mentioned yesterday, technical support levels start at 1.0490/00

The Italian mathematician reckons that 1.3830 is the place to be buying and it seems some of the bigger players agree; solid bids reported at 1.3830

Should be a busy session in Asia today as we await the RBA rate decision and the market will remain on BOJ watch. Quite a remarkable day yesterday, with unheard of amounts changing hands in USD/JPY and many cross pairs seeing massive ranges. (And we’ll finish it all off with the Melbourne Cup!)

Good luck today

• Canadian GDP rises 0.3% in August versus 0.2% consensus forecast
• Italian yields spike toward crisis highs posted in August; trades at 6.15%
• Portugal asks for more flexibility in EU-I<F bailout terms
• MF Global files for bankruptcy after bad Italian bond bet
• Chicago PMI 58.4; below expectations for 59.0
• EFSF bond deal to fund Irish bailout downsized due to lack of demand
• Dallas Fed index improves to 2.3 in October from -14.4 in September
• Moody’s: Sweden AAA and outlook stable; based on very high financial strength
• French PM to discuss Greek deal with banks on Wednesday
• IMF says CAD “on the strong side” relative to fundamentals; Accomodative monetary policy appropriate
• Greek PM calls for referendum on latest debt deal; in addition, confidence vote set for Friday
• US Treasury announces higher borrowing needs as revenues fall, spending increases
• Greek deficit widens 15% despite austerity in first 9 months of 2011
• S&P 500 falls 2.5%
• US 10-year note falls 20 bp to 2.12%
• WTI falls 0.90 to $92.46; gold falls $28 to $1716

EUR/USD fell hard throughout the US session, essentially unwinding all the gains seen late last week on supposed euphoria over the Greek debt deal. Helping undermine the euro was the bankruptcy filing by MF Global on the back of a bad bet on Italian debt. Softish Chicago PMI, widening Italian spreads despite the EU bailout being barely 4 days old and news of a Greek referendum being called to ratify the latest debt deal (what are the odds of that passing?) all helped spark a reversion to risk aversion,sending stocks and bond yields lower and the dollar higher.

GBP was a major outlier today, rallying forcefully at month-end, traditionally a seasonal weak period for the pound. The slide in EUR/GBP triggered very large stops below 0.8670  and sent us below 0.8600 late in the day. The selling was so intense, some wondered if it could some how have been linked to the MF Global liquidation.Cable jumped to 1.6167 in frantic trade before retreating to close at 1.6085.

USD/JPY was little moved in the US amid talk of Japanese semi-official names buying the pair on the dips. There is a school of thought that today’s intervention was designed to help gussy-up the balance sheet of Japanese corporates at month-end.

EUR/CHF fell to 1.2140 amid renewed European sovereign debt concerns, no doubt causing a few of the gnomes of Zurich to feel their collars tighten just a tad…

Low for the day? 1.3829.

That Fibonacci dude is wicked smaht!

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