EU eyes Greece, NZ and Oz watch sharemarket

By Jamie Gray, AAP

Farmers will be closely watching Wednesday's dairy auction for signs that the market has stabilised. Photo / Thinkstock
Farmers will be closely watching Wednesday's dairy auction for signs that the market has stabilised. Photo / Thinkstock

The general election in Greece is likely to be the talk of the financial markets this week, but there is a lot on the local agenda as well.

Much is riding on the election because it will be the key to whether Greece remains in the eurozone.

If voters reject the austerity measures, Greece runs the risk of being ejected from the common currency system.

Bank of NZ currency strategist Mike Jones, commenting on last week's decision by the Reserve Bank to leave its official cash rate unchanged at 2.5 per cent, said if Europe muddles its way through, so will New Zealand.

"If not, all bets are off and the Reserve Bank will drive the cash rate as low as needs be," Jones said.

The week will feature the latest international dairy auction, plus key balance of payments and gross domestic product data for the March quarter.

In the corporate world, it's crunch time for Metlifecare's three-way merger plan, which will go before shareholders at a special meeting.

Farmers will look to Wednesday's dairy auction for evidence that the market for dairy products has stabilised.

At the last auction on June 6, prices rose by 13.5 per cent, with an average selling price of US$2899 a tonne.

Balance of payments data - the statistic keenly watched by ratings agencies Standard and Poor's and Fitch Rating - are also due out on Wednesday.

S&P has often said New Zealand's current account deficit is a risk to its creditworthiness.

Last year, S&P downgraded the Government's long-term foreign currency rating from AA plus to AA with a stable outlook, citing the country's worsening external position as a key concern.

While the balance of payments data are unlikely to contain much good news, the shortfall will be nowhere near the 8.9 per cent of GDP at the end of 2008.

New Zealand had a seasonally adjusted current account deficit of $2 billion in the December 2011 quarter, down $0.8 billion from the September quarter deficit. The improvement was driven by higher exports of goods, especially dairy products.

For the year ended December 2011, the current account deficit was 4 per cent of GDP, compared with 4.3 per cent for the year ended September 2011, but the deficit has generally been on a rising trend since March last year when it was just 1.9 per cent of GDP.

Darren Gibbs, chief economist at Deutsche Bank, said he expected the current account deficit to widen to 4.6 per cent over the year to March, and the seasonally adjusted quarterly deficit to come to $2.6 billion.

GDP data are due on Thursday, and Gibbs expects a quarterly growth rate of 0.3 per cent, and 1.1 per cent for the year.

"It's fair to say that the underlying growth potential of the economy is pretty weak," he said.

New Zealand's growth rate will be in stark contrast to the last Australian GDP release, which showed growth surged ahead by 1.3 per cent in the March quarter and by 4.3 per cent for the March year.

Outcome of Greece election set to influence Australia's sharemarket

The outcome of the election in Greece will determine whether the Australian sharemarket goes up or down today.

Greeks went to the polls overnight to determine whether to endorse a conservative government committed to economic reform or a popular radical left administration which would likely see an exit from the euro. There could also be another stalemate.

An exit from the euro would unsettle financial markets.

CommSec chief economist Craig James said everything was hanging on Greece.

"We had a positive finish in US and European markets, and our futures market is indicating a rise of 25 points, but that can all change depending on what the election result is," James said.

"It could be a much more significant gain if Greece opts to go with the conservative parties, but if it goes the other way, those gains certainly won't be realised at all."

James said Australian investors may seek guidance on direction from the futures market in the US. On Wall St on Saturday, stocks closed higher after European markets lifted amid confidence that central banks would act to stop any adverse credit market impact should Greece leave the eurozone.

The Group of 20 summit in Mexico tomorrow and Wednesday will also be closely watched as leaders of the major economies grapple with Europe's crisis and other global ills.

- APNZ

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