All eyes this week—well, all the eyes of currency traders and stock investors anyway—are focused on what’s being called the “troika.” Officials from the European Union, the International Monetary Fund, and the European Central Bank are expected to complete their review of Greece’s progress in meeting terms of the rescue package this week. If they rule that the Greek government has made insufficient progress that could jeopardize the next $17 billion in funds scheduled to be delivered to Greece in June. Without those funds, Greece could wind up defaulting on its debt.

The odds that Greece would pass this review got worse last week when, on May 24, Greek Prime Minister George Papandreou failed to win agreement on new austerity measures from the main opposition parties. The new measures include an additional $8.5 billion in budget cuts and new sales of state-assets.

The Greek people shouldn’t be “trapped by blackmail,” said Aleka Papariga head of the Communist Party of Greece, after the talks. Antonis Samaras, leader of the biggest opposition party New Democracy, called the new steps the “same old failed recipes.”

Sounds like promising grounds for a compromise, no?

The troika has demanded that Greece adopt these budget measures before it approves the next tranche of the initial bailout and before considering additional aid for 2012. Read more

For U.S. stocks the long-term upward trend is in danger–thanks to worries about the euro

So far—and I mean “so far”—the major U.S. stock market indexes remain in their long-term upward trends. But we’re getting close, the technicians say, to levels that would put the continuation of that uptrend in doubt.

For the Dow Jones Industrial Average, which drooped to 12356 at the close today, May 24, the key level for support is 12100, wrote Arthur Hill on May 23 on StockCharts.com. That level represents the low for April and the trend line that stretches back to last November. A close solidly below that number would mark a new level of risk in the U.S. stock market.

One thing that troubles me about the U.S. market’s ability to hold that level and keep that upward trend line intact is the breakdown of core European stock markets. The Italian and Spanish markets have both broken support but those declines aren’t what worry me. It’s the breakdown in the Dutch market where, Hill notes, the Dow Jones Netherlands Index broke below its March low recently. The Dutch economy has been one of the stronger in Europe.

The German and French stock markets—the keys to Europe’s financial markets—are also looking a little shaky. Read more

Just when you think the euro debt crisis can’t get any worse, it does. Or at least that’s how stock markets see it today.

The bad news from Europe today includes a cut to Italy’s credit rating outlook by Standard and Poor’s and a smashing defeat by Spain’s ruling Socialist party in local elections as voters voiced their opposition to budget cuts.

As of 1 p.m. ET on Monday May 23 the Dow Jones Industrial Average was down 151 points or 1.2%, the S&P 500 was down 1.3%, Germany’s DAX was down 2%, London’s FTSE 100 was down 1.9%, Hong Kong’s Hang Seng index was down 21%, and the Shanghai Composite index was down 2.9%.

Slovakia’s Slovak Share Index was up 0.93%. (The index isn’t especially important but it is the only index I can find that’s in the green today.)

The worry on the news from Italy and Spain is that the euro crisis will spread from Greece, Ireland, and Portugal to take in Spain and Italy. Read more

Business as usual: Euro falls, dollar climbs, stocks tumble

Today the euro is down and the dollar up. That means commodities stocks are down.

Yep, the relationship between the euro and the dollar remains the big driver in global financial markets.

Today, May 20, the euro fell against the dollar for the first time in five days. That has put an end to the rally in U.S. stocks that took the Standard & Poor’s 500 from 1328.98 on May 17 to 1343.6 yesterday, May 19. Today the S&P 500 finished down 0.8%.

Today’s big, bad news for the euro comes out of the European Central Bank, the week’s currency Grinch. After throwing a tantrum yesterday over talk of restructuring Greek debt—No, Nein, Non!—another member of the bank’s governing council weighed in with remarks that the bank could stop accepting Greek government debt as collateral for loans to Greek banks in the case of a reprofiling of Greek debt. (In a reprofiling Greece would keep paying interest on its debt but bondholders would agree to stretch out the maturity of that debt. That way Greece would be under less pressure to refinance maturing debt at the punished rates—about 25% for Greek two-year notes–in the financial markets.)

If the European Central Bank stopped accepting Greek government bonds as collateral for loans to Greek banks, those banks would stop buying Greek government debt. And that would produce exactly the kind of financial crisis that the bank says it wants to avoid.

Why the seeming contradiction? Read more

Sinking euro and rising dollar turn commodities retreat into a rout

Just what commodities and commodity stocks didn’t need today: A drop in the euro has produced a stronger dollar, which is, in turn, pressing commodity prices lower. Much lower. Gold fell by $50 an ounce today. Oil broke below $100 a barrel for the first time since March. Silver fell by another 10%.

The drop in the euro is a result of the European Central Bank’s decision not to raise interest rates at today’s meeting but instead to instead wait until at least June.

A delay until June shouldn’t have come as a surprise to anyone since I think bank President Jean-Claude Trichet signaled that June was the likely next stop on the interest rate train when the European Central Bank raised its benchmark interest rate to 1.25% on April 7.

That was the first interest rate increase from the European Central Bank since 2008. And the markets saw it as the first of a series of increases to fight inflation that hit 2.8% in April, well above the bank’s target of close to but below 2%.

On that conviction, markets bid up the euro against the U.S. dollar. The Federal Reserve seems unlikely to raise U.S. interest rates until late in 2011 at the earliest and that meant euro interest rates would be climbing while U.S. rates were sitting still for six months or more. And that increased the attractiveness of the euro against the dollar.

Today’s lack of action by the European Central Bank disappointed not only those who had read the bank’s April move as a promise of another increase in May, but also worried those who are counting on the bank to move strongly against inflation even if with a delay. In today’s statement Trichet didn’t use the phrase “strong vigilance” that has come to be the bank’s signal of an impending rate increase. Instead he said only that the bank will monitor inflation risks “very closely.” Some investors have concluded from that the bank doesn’t intend to raise rates in June either but will instead wait for July.

That worries the financial markets since it might indicate that the bank is so concerned about the debt crisis in Greece, Ireland, and Portugal that it is willing to tolerate more inflation in order not to further stress those economies. With no end to the economic difficulties in sight that possibility suggests that the European Central Bank might be less than its usual inflation-fighting self for the foreseeable future.

I don’t know how the central bank disproves that worry except by raising interest rates in June or July. Until then, the euro is going to have quite a few days like today. Which, of course, would be good for the dollar and not so good for commodities.