Greek Threats Spook Market, Australian GDP on Deck

The market sensed desperation in a last-minute threat from Greek officials on Tuesday, sending risk assets sharply lower. The Australian dollar was the worst performer while the yen surged. The Asia-Pacific region is mostly quiet Wednesday with Australia GDP as the lone highlight. Monday's LATEST PREMIUM INTERMARKET TRADES include existing trades on USDCAD, EURGBP and gold w/ charts on US jobs figures

Officials from Greeces finance ministry issued a statement saying it does not contemplate paying out PSI holdouts and affirming that it will invoke the collective action clause if participation is not high enough.

Rumors grew that the swap may not even reach the 66.6% threshold after four Greek state pension funds said they would not participate, including the police. Such still appears to be remote but would be catastrophic. Officials also denied rumors that the deadline would be extended beyond 2000 GMT on Thursday.

There is growing uncertainty about how holdouts will be treated if Greece gets more than 85% participation. There is some sense that Greece could honor the new debt for PSI participants while defaulting on the rest.

International creditors are also in focus with 14% of debt outstanding written under foreign laws and not subject to the PSI. A group in Switzerland represented by lawyers from Bingham McCutchen hinted that it is prepared for a legal fight.

In the background, concerns about slowing growth in China and the risks surrounding Fridays non-farm payrolls encouraged risk averse traders to get out of the way. The S&P 500 fell 1.5% in its worst day of 2012.

Australian GDP will be released at 0030 GMT. The consensus is for 0.8% q/q growth but the market may be priced for a tick or two lower. Look to details on investment and consumer spending for signs on what the RBA will do next.

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