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Weekly Focus: Greece Debt Meltdown - What's Next?

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The coming week includes the release of the two most important US data reports. First, the manufacturing ISM index on Monday. Regional PMIs released so far have been upbeat and we expect the ISM to remain virtually unchanged at close to 60. Second, the April employment report on Friday. We expect a total increase in nonfarm payrolls of 200,000. This includes an underlying increase in payrolls of +60,000 and hiring for the Census of +140,000. We expect the unemployment rate to be stable at 9.7%. Furthermore, the Fed's Senior Loan Officer Survey covering the first months of 2010 will be published in the coming week, likely Monday.

Finally, Bernanke is scheduled to speak at Chicago Fed's banking conference on Thursday. This will give the Fed Chairman a chance to elaborate on the Fed's thinking following the FOMC meeting this week. It will be particularly interesting to look out for any comments about the risks of contagion from the stress in southern European sovereign debt markets to global financial markets.

Greece and the ongoing debt crisis will likely be the primary market mover next week. A tentative plan is that Greek negotiations with the IMF and the European Commission can be concluded this weekend. The next step is then to get German law on aid for Greece approved by the German parliament, which could take place on Monday. The Greek parliament should then vote on the three-year savings programme at the end of next week at the latest. But possibly earlier as pressure is mounting. Watch out for any signs that Germany is demanding austerity measures beyond what Greece is willing to deliver. Public opinion in Greece is against further tightening and the Greek General Workers Confederation has announced a general strike for May 5 against "blackmail" by the EU and IMF. However, Germany is unlikely to turn soft prior to the important elections in Nordrhein-Westfalen on May 9. An EU emergency summit on the Greek debt crisis is currently planned for May 10. The ultimate deadline for Greece is May 19 when a EUR8.5bn government bond matures. Contagion to Portuguese bonds and other markets could result in talks about more rescue packages. Any rumours about these talks could then quickly become market movers.

Euroland final PMIs for April are likely to show small upward revision and improvements for both Italy and Spain. Greek PMI will be less pleasant reading. Euro area retail sales, due out on Wednesday, are projected to show decent improvements and German industrial orders out on Friday are likely to show strong gains reflecting the very positive manufacturing PMIs following an unchanged level in February.

In Asia focus in the coming week will be mainly on the release of Manufacturing PMI. We believe the overall trend in manufacturing PMI's in Asia will be unchanged to slightly down, underlining that growth probably peaked in Q1 10 and should start to moderate in the coming quarters. In China we expect the official NBS manufacturing to improve to 56.0 from 55.1 mostly because of imperfect seasonal adjustment.


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