Markets cautious ahead of key week for Greece

LONDON: Global markets edged lower in lackluster trading yesterday, as investors remained cautious ahead of a crucial week for Greek leaders as they try to show they are making progress in implementing economic reforms.
In Europe, the FTSE-100 index of leading British companies edged 0.4 percent lower to 5,828.72 while Germany’s DAX was flat at 7,040.52. France’s CAC-40 was 0.3 percent lower at 3,478.43.
Wall Street dipped on the open — both the Dow and the broader S&P 500 shed 0.2 percent — while Asian markets had earlier closed down.
Investors this week are watching Greek Prime Minister Antonis Samaras’ visit to Germany and France, where he is expected to ask for an extension on Greece’s deadline to meet fiscal targets as the country carries out painful reforms.
Luxembourg Prime Minister Jean-Claude Juncker, who chairs the eurozone finance ministers’ meetings, will be in Athens tomorow to meet Samaras. German Foreign Minister Guido Westerwelle said Athens must follow through with reforms but added that Berlin wants Greece to remain in the eurozone.
There is, however, little chance of Germany supporting a third rescue package, Volker Kauder, a senior ally of Chancellor Angela Merkel, was quoted by Der Spiegel as saying.
Ahead of Samaras’ meetings, Greece’s finance officials were trying on Monday to secure 11.5 billion euros ($ 14.19 billion) in budget savings necessary for the country to continue receiving its bailout funds. Greece’s debt inspectors will issue a report next month on whether the country is doing enough to cut its debt.

Germany’s central bank, the Bundesbank, has again stressed its skepticism toward proposed purchases government bonds by the European Central Bank.
ECB President Mario Draghi said on Aug. 2 that the bank might make such purchases to lower the high borrowing costs faced by some governments, if those countries first applied for help from the eurozone’s bailout fun. Draghi noted that the Bundesbank was the sole dissenter to the plan.
High borrowing costs on government bonds are threatening to ruin the finances of Spain and Italy, which are struggling to control their debts while their economies are in recession. If the borrowing costs remain at a high level — many market-watchers put that at 7 percent — a country would find it increasingly difficult to maintain its bond repayments and would have to turn to the other eurozone countries and the IMF for assistance. Because Italy’s and Spain’s economies are so large — the third and fourth largest in the eurozone — many analysts are worried that a request for a bailout would stretch the eurozone’s finances to breaking point and plunge the region further into recession.
The German national central bank said in its monthly report Monday that it continues to “critically assess” such purchases and that they would carry “substantial risks.”
The Bundesbank has one seat on the ECB’s 23-member governing council, but has added clout because it has considerable public support among economists, legislators and the general public in Germany.
Spain’s borrowing costs dropped sharply yesterday following remarks made by the country’s Economy Minister, Luis de Guindos.
Over the weekend, de Guindos said the ECB’s bond-buying campaign should not be limited in amount or time. In early afternoon, trading the interest rate on Spanish 10-year bonds the secondary markets stood at 6.29, down 15 points for the day, although it had been down by as much as 30 points from Friday’s close.
Ignacio Cantos of investment advisers Atl Capital attributed the drop to the market anticipating that the European Central Bank’s program would match de Guindos’ expectations.
In Asia, the Shanghai Composite Index dropped 0.4 percent to close at 2,106.96, the lowest level since early 2009 as investors continue to be cautious about the world’s second largest economy amid mounting signs of a slowdown. The smaller Shenzhen Composite Index gained 0.3 percent to 879.25. Agriculture, biotechnology and food companies led gains while insurance, real estate and engineering companies dropped.
A report over the weekend that property prices in July rose slightly indicated the property market was benefiting from recent interest rate cuts, analysts said. But investors were still downbeat about prospects for further big stimulus measures, which are often announced on weekends or holidays.
“Every weekend investors are expecting the (Chinese) central government would throw out polices and every Monday comes in and there are no policies,” said Jackson Wong, a vice president at Tanrich Securities. “That disappoints investors in general.”
Elsewhere, Japan’s Nikkei 225 index rose 0.1 percent to close at 9,171.16 while South Korea’s Kospi was practically unchanged to end at 1,946.31.
Hong Kong’s Hang Seng shed 0.1 percent to 20,104.27.
In currencies, the euro was trading at $1.2313, down 0.3 percent from Friday, while the dollar was steady at 79.47 yen against the Japanese currency.