EURO ZONE DEBT CRISIS SHOWS NOW SIGN OF ABATING - As we enter the second week of January, the euro zone debt crisis is still in the house like an unwanted Christmas present. This week the euro hit a fresh low on concerns about whether the euro will survive much further into the year in its current form. Yesterday investors paid for the pleasure of holding German short term debt, while there are record amounts of cash being lodged at very low interest rates with the European Central Bank rather than being circulated at more preferential rates in the interbank markets.
The Head of European Rates at securities and investment banking group Jefferies & Company in London, Dominico Crapanzano, says the money markets are broken and money is not flowing freely. He says the ECB is standing in in an effort to protect the markets amid the lack of any political resolutions. He warns that the situation will only get worse before it gets any better. The analyst says that the ECB is throwing everything at the problem, including its first offering of three year loans - worth €489 billion - to euro zone banks in December. He says another such offering will be made in February but will not solve the crisis. He says the only real, long solution to the problem is political leadership and sovereign refinancing.
Mr Crapanzano says that Ireland is doing well but still has a huge hangover from the bank guarantee. He says there is only so much a country can do to fix its huge problems and predicts the country will struggle when it returns to the bond markets later this year.
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MORNING BRIEFS - US aluminium producer Alcoa has forecast a 7% growth in global demand for aluminium this year. The company is traditionally the first US company to report fourth quarter earnings and it beat analysts expectations by reporting sales of €6 billion even though the price of aluminium actually fell. Alcoa forecasts a supply shortfall against demand of more than half a million tonnes because of cutbacks in production.
*** On the currency markets, the euro is worth $1.2788 and 82.66 pence sterling.
