Hurrah the world is saved! After five months of disappointment there appears to be a deal on the table that European leaders and creditors are happy with and keeps Greece afloat until the end of the year, yes another six months. Greek stocks rallied over nine percent, the Dax had its fourth largest ever gain and the NASDAQ hit all-time highs. Credit has also celebrated with buyers coming in to join in the party. European sovereign markets saw yields fall with Italy -12bps, Spain -16bps, Portugal -24bps and Greece ten years -150bps. Of course safe havens such as Bunds, US Treasuries and UK Gilts saw yields up as the “risk on trade” found momentum.
However, the deal has yet to be signed but is rumoured to include a closing out of early retirement options, a wide ranging increase in VAT rates, cuts in defence, and an increase in corporation taxes for those firms earning more than €500mln a year in profits; but perhaps most importantly a broad-based increase in pension contributions. The deal is expected to be signed this week and will head off the payment due to the IMF at month end. So another short term fix, lending more money to pay back some of the money already owed, but what about a longer term solution? Surely the only way Greece can get back on track is to follow the examples of Ireland and Portugal and make the tough, no-nonsense changes that are required to cut debt and boost growth; unfortunately we doubt the Greek politicians have the will for this and expect a replay of these financial negotiations in a few months’ time.
While sanctions are certainly hindering Russia’s economic growth prospects, some business continues unaffected. BP Plc’s $750m Siberian oilfield purchase in the Taas-Yuriakh Neftegazodobycha LLC’s block near China’s northern border, purchased from OAO Rosneft last week, amounts to a 20% stake in the block. This purchase is to try and position BP to take advantage of Russia’s new found focus, due to the sanctions, on supplying China, the world’s biggest energy consumer with natural gas and oil.
The Taas-Yuriakh unit plans to increase oil production five-fold to 100,000 barrels a day by 2017. This focus from BP on Russia’s oil fields comes as world demand for oil appears to be slowing, recent data suggests the world’s oil consumption rose by just 0.9% last year with gas up just 0.4% the lowest demand since before 2009. This data is boosted by China’s demand for oil up 8.6% and Gas up 3.7% last year and explains the new found focus from BP and Russia as suppliers position themselves for an extended period of lower oil prices.