Euro Steps Away From Highs, Focus Shift To The US

The Euro backed off the previous session's 1-month high against the US Dollar during the Asian session on Wednesday when relief about a new debt deal for Greece transformed into widespread unease about the looming US fiscal crisis.

While a plan to cut Greek debt and allow the nation to secure more financial aid in order to avoid a chaotic default has been approved, skepticism grew over the lack of details on how the Greeks plan to implement the reforms needed to meet these targets.

Meanwhile, The US Congress pushed toward compromise on Tuesday on a deal to avoid looming tax increases and spending cuts coming up next year. No agreement has been reached just yet, despite growing pressure less talk and more action.

Greek deal could see countries take losses.

The measures that the Troika has agreed to in the deal to release a long-delayed €34.4B tranche of Greece's bailout will reportedly only bring the country's debt-GDP down to 126.6% by 2020 and 115% by 2022, not the respective 120% and 110% that was advertised. Officials are studying further ways to reduce Greece's loans, but it could mean that eurozone nations will have to take losses on the debt they hold.

Steel industry unable to adjust to economic realities.

The steel industry is suffering from chronic overcapacity, with production ability of 1.8B tons but expected 2012 orders of just 1.5B tons. And instead of cutting back, the sector is building more mills, often supported by governments. Major problems include the fragmentation in the industry and the political difficulties of closing plants - witness ArcelorMittal's (MT) travails in eastern France, where the government has threatened to nationalize one of the company's mills

French unemployment hits 14-year high.

The number of job seekers in France rose 1.5% in October to 3.1M, the highest since April 1998, with the increase the 18th in a row. The Labor Ministry said that because of the struggling economy, the figures could get even worse. The government hopes that corporate tax rebates and other measures that are due to come in next year will kick-start the economy and bring unemployment down.

Outlook for Indian gold demand jumps.

Demand for gold in India, one of the world's largest markets for the metal, is forecast to rise to 800 metric tons in 2012, well above a prior prediction of 650-750 tons. The increase in the outlook follows a pick-up in purchases during the festive season and comes despite government efforts to restrict gold sales amid concerns about India's current account deficit.

OECD takes axe to world growth forecasts.

 The OECD has cut its prediction for global growth to 2.9% this year from a previous forecast of 3.4%. In its twice-yearly report, the organization also said growth in 2013 will increase to 3.4% rather than 4.2%. The OECD cut its estimates for the U.S. as well - predictably warning about the fiscal cliff - and said the eurozone will shrink in 2012 and 2013 before recovering in 2014.

Greece is one of the most indebted countries in Eurozone. So much so, that it is almost on the verge of bankruptcy. In the past, many options have been explored to reduce the country's debt. And in the latest move, both Eurozone and International Monetary Fund (IMF) have taken the matter in their hands. Both these institutions have clinched an agreement to reduce Greece's debt by 40 bn Euros to approximately 124% of the Gross Domestic Product (GDP) by 2020. To reduce the debt, interest rate will be cut on the loans given to Greece. For some loans maturity will be extended with the option to defer the interest payments. It has also been agreed that Greece will be given some financial assistance to fulfill its debt obligations provided it meets certain conditions. This is likely to reduce the uncertainty in Eurozone and strengthen the Euro.

While these steps will reduce the debt burden on Greece, it would be interesting to see whether Eurozone members will write off some of the loans as a part of debt reduction program. If that is done, the member nations who have lent to Greece may incur a huge loss. Hence, that possibility appears remote as of now. But if Greece diligently implements its austerity plans, a haircut on the existing debt is not ruled out completely.