Effectively, the CME is lowering the cost to trade crude oil, gold, silver, copper, and a few other commodities. So far this has had no impact on prices of the SPDR Gold Trust (NYSE: GLD), United States Oil Fund (NYSE: USO), iShares Silver Trust (NYSE: SLV), nor in the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC).

In the past, margin costs were raised on traders as an effort to curb runaway trading to the upside by making it more expensive for traders and speculators to trade energy and metals.  In short, driving up the cost of poker creates fewer gamblers. So what happens when they make it cheaper to trade?

The full details are here.

JON C. OGG

National Bank of Greece (NYSE: NBG) is up 1% on its ADR trading in New York to $3.96 this morning.  Keep in mind that this has already more than doubled from the $1.64 low that was seen as recently as January 10, 2012.  Not a year ago.. a month ago.

And the Greek stock market ETF, the Global X FTSE Greece 20 ETF (NYSE: GREK) has not even yet traded this morning and it has extremely thin volume even during the trading day. Shares closed Wednesday at $19.16 and its post-launch range has so far been $12.70 to $19.54.

The Rydex CurrencyShares Euro Currency (NYSE: FXE) is up by 0.15% at $132.21.

As far as other “pro-Euro” trading ADRs, we are only seeing mixed action on that front as well:

Alcatel-Lucent SA (NYSE: ALU) is up 1.5% at $1.98 but that may be after a Cisco earnings report (although Cisco is indicated lower).

Deutsche Bank AG (NYSE: DB) is trading up 1.2% at $46.82 in New York.

Banco Santander, S.A. (NYSE: STD) of Spain is trading down 0.5% at $8.71 in active pre-market trading.

Great news may finally be here, but the market has been expecting a deal or has at least been trying to come up with a fair market value around the issue of “Greece, or no Greece…”

As always, until a deal is signed this may be hearsay.  Future politicians may also not choose to live up to the agreements.  Sad, but possible.

JON C. OGG

Venizelos, the prime minister and the other major political parties in Greece apparently have agreed on austerity measures they believe will satisfy those who would provide the southern European nation new loans. Greek officials have gone so far as to say they will cut the country’s minimum wage by 20%. They have not agreed whether some public pensions benefits can be lowered. That single issue could block a resolution.

The ECB has said that a direct bailout of Greece is not its problem, nor can it be. The bank’s responsibility is to the region’s banks. The ECB can make loans to these financial firms with the hope that they will buy sovereign paper. However, the banks are under no obligation to do so. The IMF would like to take a larger role in the bailout process, or so its leader Christine Largarde says. But the agency does not have the money for the serial bailouts of nations that may need money nearly as badly as Greece does. And IMF members may object to the risk to their money if a Greek bailout fails.

The lack of any ability to act by the IMF and ECB leaves the EU as the decision maker of last resort. Because of the financial strength of France and Germany, the final resolution, or lack of one, belongs to them. Bloomberg reports that polls taken in France show that President Nicolas Sarkozy has the lowest popularity ratings ahead of elections of any leader since the end of World War II. France is out of the running as the leader of a bailout because Sarkozy is.

That leaves Germany and Angela Merkel. Polls taken in her country indicate that most voters want Greece out of the eurozone. They do not want their tax dollars to go to a nation where the citizens cannot control their spending and the government cannot collect taxes. So, Merkel will have to put her own political future at risk if Germany is to step forward in Brussels with a solution, and the money, to solve the Greek crisis.

It always did come down to Germany, because Germany controls the purse strings of the region. The unsolved mystery is whether the richest country in Europe will take the long risk of holding the region together. But that is nothing new.

Douglas A. McIntyre

Domestic turnover decreased by 2.1%, the business with foreign customers fell 2.4%. Sales to euro area countries were 4.2% below the preceding month’s level, while sales to other countries dropped 1.0%.

The figures are particularly troubling because the decline was not restricted to transactions with other countries in the region. Large importers like the U.S. and China probably contributed to the problem. If so, it is a sign that the turnaround in the global economy is inconsistent. Concerns about that have been voiced recently. The International Monetary Fund lowered its GDP growth forecasts for every large nation other than the U.S. The agency also warned that China’s GDP growth, currently predicted to be up by 8% this year, could be half of that if trouble in Europe worsens.

The worry about Europe has begun to tilt a bit away from the sovereign debt crisis and toward concerns that the entire area may be at the start of another recession. These issues are, of course, linked. Austerity is the antidote to the debt crisis, at least in the minds of the leaders of Germany, the region’s de facto banker. But experts believe that austerity will quickly choke growth and deficits will rise despite cost cuts because a downturn will compromise tax bases. The German export numbers show that the shock to the region’s nations has begun already. That point of view is bolstered by recent unemployment numbers for most of Europe’s countries.

It is ironic that Germany may be crippling its own economy. Its insistence on budget cuts in Spain, Italy, Portugal and Greece will quickly undermine the ability of their citizens and businesses to be even modest consumers of imports. Germany will have gotten what it wants in budget cuts, but its own businesses will be much the poorer.

Douglas A. McIntyre

A cut of 450,000 public sector jobs in the U.S. might not devastate the economy, but it certainly would wound it deeply. Over the past six months, the number of jobs added on average per month has been about 120,000. The loss of 450,000 jobs could take several months to overcome. In the meantime, the government would carry the cost to support those who have become unemployed, and the growth of consumer spending, so critical to GDP, would face another setback.

The 15,000 jobs cut are another reason to question the power of austerity to fix national deficits and, eventually, bring down national debt. Greek unemployment is already 13%. Another 15,000 jobless people would increase that by half a percentage point. And more cuts in the private labor force of Greece are likely, as are cuts in the pay of those who will keep their jobs for now. The insult to a Greek recovery is well beyond the 15,000.

There is no guarantee that if austerity fails, because the Greek economy does not recover in the next year, that those who provide funds to Greece will ask for more cuts in government expenditures. One of the easiest ways to do that will be to set another tranche of layoffs. It is usually easier to identify people than to sift through complex government programs for budget cuts.

A loss of 15,000 Greek public sectors workers would be close to half a million jobs in the U.S. The American economy has gained strength, but layoffs of that size would undermine whatever gains have been made here in the past two quarters.

Douglas A. McIntyre

Greece remains the most significant example of what is wrong with Europe. Its economy has almost no manufacturing, and what it has is not efficient. It cannot compete with nations worldwide, except perhaps as a tourist destination. China is the most efficient manufacturer in the world, but the critical nature of its ties to Europe increase by the day. As its PMI numbers falter, many economists blame a drop in demand of finished goods from the EU, now the world’s largest economy — larger even than the U.S.

China has offered to help Europe by possible investments in the IMF, the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF). The People’s Republic has made it clear that this is not an attempted takeover of Europe’s finances. It is in the self-interest of the Asian nation to help Europe, it has assured EU officials, most recently as its top politicians met with Angela Merkel.

But financial aid will not ease the factors that make Europe a less likely market to consume China’s finished goods with robust demand. Greece has fallen deeply into recession. It has been followed by Portugal and Spain. Some economists believe that even Germany and France have succumbed. If all of those things are true, the IMF’s concerns about China are almost certainly accurate, and the agency’s downside forecast likely will be accurate.

Greece was the earliest example of what is wrong with the eurozone now: high debt worsened by an economy that cannot compete with most others in the world. As much of Europe falls into a similar position, China’s chances of a hard economic landing grow so fast that it may happen this year.

Douglas A. McIntyre

Greece still does not have a final agreement with private debt holders which have been asked to take a 70% reduction in the value of their bonds. A default would likely drive this paper’s value to zero, which could, in turn, severely damage the balance sheets of a number of eurozone-based banks. Greece’s own banks are close to insolvency, and most hold a great deal of Greek debt.

There is a debate as to whether a Greek default would cause global capital markets investors to abandon the paper of other countries which are in substantial financial trouble–particularly Portugal. This would drive their borrowing costs to unsustainable levels

Greece’s situation is exacerbated by the fact that the IMF’s plan to add 500 billion or more euros to its war chest has not happened yet. The size of the The European Financial Stability Facility (EFSF) is not large enough to handle a set of serial collapses of sovereign debt. The permanent European Stability Mechanism (ESM) has not been put in place yet, and even it it were, many experts think its capital base would have to be close to $1 trillion if it had to rescue Portugal, Spain, and Italy.

The ECB, which might be the last line of defense for Greece, has said it is not in its charter to buy sovereign debt, although it has created tremendous liquidity in the market through its loans to eurozone banks. Those banks, in turn, have bought area sovereign debt. But, if ownership of that debt becomes more risky, financial firms may abandon their programs.

Greece may be in default by this time tomorrow.

Douglas A. McIntyre

The Fed Funds Futures are very different today from a week ago after Ben Bernanke and his minions at the FOMC predicted that rates would be “exceptionally low through at least the end of 2014.”  Prior to that, it was a mid-2013 promise.  The reality is the FOMC has no obligation to commit to any time frame and the late-2014 was a projection rather than a commitment.  Still, this was a ‘risk-on’ signal if there ever was one.

Fed Funds Futures are now showing a 100% chance of a rate hike in December 2013.  That is the first month where the price is under 99.75 and this is the first time in quite a while that a rate hike has been this close.  What is interesting is that there is still close to an 80% chance of a rate hike by August of 2013.  Should you panic?  Absolutely not.  The rate hike would just remove the 0.00% to 0.25% range up to a formal 0.25% Fed Funds Rate.

It is still all the way out to September of 2014 now before the Fed Funds Futures are calling for a 100% chance of a 0.50% Fed Funds Rate.

Daily rates can be seen here for Fed Funds Futures from the CME.

JON C. OGG

There are two persuasive arguments about the size and investor composition of the EFSF and ESM. The first is that if the facilities are as large as $1 trillion, global capital market investors will believe that the amount of money available for bailouts is so huge that the bailouts will not be needed. Investors will accept that austerity and such a huge safety net will make bets on sovereign debt, even in weaker economies, safe. That, in turn, will bring down long-term yields and make the borrowing costs for nations like Portugal and Spain manageable as each tries to cuts its deficits. China’s willingness to invest large amounts in the EFSF and ESM will improve the odds that the firewall will be sufficient, and, if needed, the facilities might be able to draw on more capital.

The second important issue about the EFSF and ESM is whether the capital that goes into them will come only from the stronger nations in the region. If so, it would mean that countries like China do not believe that a fund of almost any size is a reasonable investment. Capital markets bond buyers will ask why only the eurozone’s nations will invest in their own futures. It will appear that they are desperate to do so to prevent the eventual collapse of Greece, Spain, Portugal and perhaps Italy.

China’s self interest is simple, and it is why the country probably will put money into the EFSF and ESM facilities, or the International Monetary Fund, as the agency tries to provide a financial foundation for the eurozone. China needs an economically healthy Europe to support its exports. Without Europe, China’s manufacturing sector could flag and its own GDP would, in turn, slow.

China’s risk in investing in Europe is small — practically nonexistent. The benefits outweigh the risks by that much.

Douglas A. McIntyre

Over the past two months, PMI data from Germany and France have prompted most experts to believe that Germany and France were recovering. The International Monetary Fund expressed its opinion that the UK would grow slowly this year, as has Bank of England governor Sir Mervyn King. Neither believes that the improvement will be robust, but it has begun, nonetheless.

The debate about the economies of Germany, France and the UK may be academic. The difference between a 0.1% drop in GDP and a 0.1% improvement will not be enough to improve employment, factory production or consumer spending. The ripple effect of the flat line of growth is that the fear of contagion to the U.S. and Chinese economies will come true. The IMF argued in favor of this pessimistic point of view last month as it cut GDP forecasts for most large nations, but data from Europe’s largest economies, the U.S. and China’s PMI argued that improvement would outrun the skeptics.

The recovery, particularly in China and the U.S., is supposed to take root this spring. U.S. tax breaks and improved job creation should increase consumer spending and business investment. The piles of cash held by large American companies will be put to work to invest in expansion. And China’s recent data on exports and factory activity have shown a pick up in the past month. The People’s Republic is so highly dependent on exports that some large part of the global economy has driven and will drive the improvement. As a matter of fact, China’s export machine is so large that it should be considered a proxy for global economic activity.

What has caused the sudden, deep concern about Europe? Probably economic predictions of a recovery got ahead of themselves. When the global economy is so delicate, it is easy for that to happen.

Douglas A. McIntyre