French Banks Take a Reprieve Amid Predictions of a Greek Default

  US stock marketswent up, European stock markets’ benchmark index rose from a two-year low, American treasuries fell after French banks put to rest rumors that they had no access to financing, and investors for their part detected signs of progress in efforts to curb the debt crisis in the Euro zone. The Standard & Poor’s 500 Index went up 0.9% at 4:00PM in New York. The Stoxx Europe 600 Index increased 0.9%. Shares of Societe Generale SA, which added 8.1% a day earlier, increased 15% while BNP Paribas SA added 7.2% after a 12% drawdown. What helped stocks go back up again were the announcements by these banks that they were able to finance their operations. Yields on 10-year American bonds immediately rose four basis points to 1.99% and oil futures rose 2.3%. The MSCI Emerging Markets Index fell, continuing its drop from its peak so far this year to 20%.

German newspaper Rheinishce Zeitung reported that Germany’s Minister of Finance Wolfgang Schauble had said that Greece will not receive any more aid. According to Mario Blejer, a former Bank of England advisor, Greece should default on its obligations in order to stop its economy from getting any worse. Yields on one-year Greek bonds rose to more than 130%. “Greece should default, and default big,” said Blejer, who advised Bank of England Governor Mervyn King from 2003 to 2008. “You can’t jump over a chasm in two steps.” Stocks jumped up after Societe Generale (GLE), France’s third-largest bank, said that it may dispute the freeze in dollar funding on US money market funds which reduced the crediting to European banks because of the Euro zone debt crisis.

Meanwhile, after last weekend’s summit between the finance ministers of G-7 countries in Marseilles, it became apparent that the summit had to widen its scope of participants and that US Treasury Secretary Timothy Geithner should definitely be present. Apparently, the ministers wanted to invite ministers from other Euro zone countries outside of the G-7 to the talks and also have it in a more discrete location than Marseilles, such as Wroslaw, Poland.

Geithner managed to express his opinions in an interview with Bloomberg last Friday, saying “[European leaders] will have to demonstrate to the world that they have enough political will.” He said that the US has “a huge interest in helping the Europeans overcome [the debt crisis] and we plan to do all we can to convince them to take more decisive actions.” The G-7 finance ministers spoke out about their support of banks and will try to strengthen the economic recovery.

White House Press Secretary Jay Carney dismissed any sort of special interest on the part of the G-7 finance ministers, saying that Geithner was going only for “a consultation with his European colleagues.” According to DT Trading analysts, the question of dividing up responsibility among EU member countries after Greece leaves and how its debts will be distributed will be brought up at the meeting in Poland. Geithner’s presence there will be to represent the position of American investors and investment banks, in particular, Goldman Sachs, which is one of Greece’s creditors on its so-called off-balance accounts.

Today we await the publication of data on retail sales in the US. DT Trading analysts are expecting this figure to grow in August by 0.2% compared with July. Such growth is also expected in the figure which doesn’t account for automobile or fuel sales.