Danske Daily

Eurozone Finance Ministers late Thursday decided to hold back aid for Greece until new austerity measures have passed the Greek Parliament.

The tough stance on Greece has derailed the otherwise strong sentiment in the US and Asian stock markets are under pressure this morning.

Markets Overnight

Yesterday the market cheered after an austerity  agreement had finally been reached by Greek politicians. Greek Finance Minister Evangelos Venizelos arrived in Brussels last night for the Eurogroup emergency meeting full of hope that an agreement would finally be endorsed by his colleagues.  However, the meeting with the Eurogroup  Finance Ministers and the discussions regarding new aid for Greece ahead of the 20 March debtrollover deadline turned out to be much more dramatic than expected. The Luxembourg Prime Minister Jean-Claude Juncker expressed his view very clearly: “In  short: no disbursement without implementation”. He added: “We can’t live with this system while promises are repeated and repeated and implementations measures are sometimes weak”.

The Eurozone  Finance Ministers said that help was dependent on Greece detailing the EUR325m spending cuts, that legislation to implement the measures is in place and that all the major party leaders sign up to the programme before the upcoming elections. The refusal to deliver the EUR130bn rescue package to Greece certainly  shows that the political leaders have finally lost  their patience with Greece, underlining the growing frustration that the country is not delivering on promises. Greece have recently missed no
less than five deadlines. Note that a new extraordinary assembly for Eurogroup Finance Ministers has been set for 15 February.

According to Greek Finance Minister Evangelos Venizelos the parliamentary vote on the new austerity measures will be on Sunday and that this basically amounts to a Greekballot on euro membership. A vote that  furthermore will take place in the midst of a new two-day general strike starting today.

As expected the ECB kept the leading interest rate unchanged at 1% yesterday afternoon. The past couple of weeks the ECB has been under rising pressure to take part in the debt relief of Greece, but Draghi de facto ruled out taking a loss on the bonds. However, he did not rule out selling the Greek bonds at purchase price. See yesterday’s Flash Comment.

The news that Greece has finally reached an agreement was initially cheered by financial markets and the S&P500 ended higher for a third day in a row. The euro also got more support with EUR/USD trading close to a two-month high at 1.3286 yesterday. However, the news from Brussels overnight has dented sentiment and the  euro has lost some ground. Asian stock markets are in negative territory this morning and US bonds sold off last night, not least after the 30y bond auction attracted less demand than expected and weekly claims fell once again. However, the renewed concerns about Greece have once again supported bonds overnight with 10-year yields once again close to 2%.

Global Daily

Focus today will continue to be on Greece after the Eurogroup Finance  Ministers yesterday made the final approval of the EUR130bn second bailout package dependent on Greece detailing EUR325m in spending cuts and approval of the austerity measures by the Greek parliament. The Greek parliament is scheduled to vote on the austerity measures on Sunday. In the data calendar we have some interesting data releases in the euro area this morning including Q4 GDP for Spain and December industrial production for France and Italy. In the US foreign trade for December and University of Michigan consumer confidence will be released this afternoon. Finally Fed Chairman Bernanke is scheduled to speak about the US housing market at 18:30 CET.

Fixed income markets: Long yields have moved higher on back of the announcement of the Greek debt deal. The long end of the curves in the US and Germany are now trading in the upper of part of their recent ranges. That said, the market reaction has generally been relatively modest, probably in caution, because the Greek parliament still has to approve the austerity measures. The ECB meeting was close to a non-event for the markets. Draghi was a notch less worried on the economy and did not signal further imminent rate cuts. Consequently money market futures moved very little. There is some
supply from Belgium today, with ’22 and ’35 bonds. Apart from this the most interesting for the rate market will probably be to see if the 10yr US and German bond yields will be able to break through some of the current support levels and establish a new and higher range for yields if the Greek deal goes through parliament this weekend, as we expect. Finally, note that there are some interesting earnings reports out today including Barclays PLC.

FX markets: The euro has been well supported the past couple of weeks and we doubt that the re-renewed concerns about Greece will derail the euro sentiment significantly today. However, the rejection yesterday by Eurogroup  Finance Ministers has made the euro more vulnerable not least after the latest rally. But remember, the latest support to the euro has not only been due to lower yields on Italian and Spanish bonds and that a final debt agreement with Greece after all has moved closer. In our opinion the stronger euro to a much higher degree reflects fewer concerns about a new global recession and the subsequent move higher in risk assets that has taken place this year. In Japan we note that Finance Minister Azumi has once again warned the market that he
is ready to intervene in the FX market. We continue to see the downside well-protected in USD/JPY and see the risk skewed to the upside in the cross – even after the latest move higher to 77.75  – the weakest level since  26 January. Overnight the Aussie dollar has declined as the RBA lowered its growth estimate to 3.5% from 4.0% in the previous quarterly monetary policy assessment, taking away some of the support after the surprise decision earlier this week to keep rates unchanged at 4.25%.

Scandi Daily

Swedish order figures have dropped sharply over the past couple of months, down to almost half of the recovery seen since early 2009. On the back of this, industrial production is like to show yet another decline in December. These figures will give us the final clues as to the Q4 GDP outcome. Demand side data have so far indicated a drop in GDP close to 1.5 % q/q, which is way below Riksbank's estimate of a flat GDP reading. Hence, if production declines again it appears almost impossible that the Riksbank can avoid making a considerable downward adjustment to its growth and inflation forecasts. Needless to say, this should convince the Riksbank that it has to cut the repo rate again next week by 25bp.

In Norway, the week’s big release is today’s January inflation. While inflation is far from the most important factor in the Norwegian economy at present, we expect continued high cost growth and surprisingly robust demand for consumer goods to limit the scope for inflation to slow notably. Last year prices fell unusually far in connection with the January sales and we expect this effect to be somewhat smaller this year. We therefore predict a moderate rise in core inflation to 1.2% y/y, which is not enough to affect interest rate expectations.