Danske Daily: Greek Austerity Package Lifts Asia Session

Last night the Greek parliament approved the austerity package, which has lifted sentiment in the Asian session.

On  Friday evening Standard & Poor’s added to the negative sentiment when it downgraded 34 Italian banks including Unicredit.

Japan’s GDP declined 0.6% q/q in Q4, dragged down by falling exports.

Markets Overnight

Last night the Greek parliament approved the austerity package with 199 for and 74 against after a weekend of protests and riots in Athens, which escalated Sunday evening and spread to other places in Greece. 43  Members of the governing socialists and conservatives voted against and were immediately expelled by their parties.  The risk of more social unrest in the coming days remains. The Greek government still has to detail the remaining EUR350m austerity measures before the Eurogroup meets to approve the second rescue package for Greece on Wednesday.  Large protests against austerity measures also took place in Portugal on Saturday and in Spain the unions announced that protests against the labour market reform, which was approved on Friday, will take place on 19 February.

Standard and Poor’s added to the negative sentiment when it downgraded 34 Italian banks including Unicredit, following the sovereign downgrade last month, emphasising Italian banks’ significantly diminished ability to roll over their wholesale debt.

US consumer sentiment data (University of Michigan) for February released Friday disappointed with a fall from 74.4 to 73.6, fuelling the negative sentiment. This morning showed a disappointing 0.6% q/q decline in Japan’s GDP, which was dragged down by falling exports and production that was negatively affected by floods in Thailand.

The US equity market closed Friday with S&P experiencing the biggest daily loss so far this year (-0.7%) and all 10 sectors down due to concerns about developments in Greece.

Cyclical sectors faced the biggest losses. This morning the Nikkei index is up 0.65% on the Greek austerity approval despite the falling exports. The S&P future is up 0.5% US bond yields rose slightly in the short end, while 10-year yields first declined and then reversed in a nervous market late in Friday’s session. Since the European markets’ close on Friday the US curve has steepened slightly.

The FX markets saw EUR/USD fall below 1.317 late Friday on concerns about Greece, but  the cross  has been lifted  above 1.325 since.  The  yen has weakened slightly this morning on the disappointing GDP numbers. EUR/CHF trades around 1.21.

Global Daily

Focus today:  In the absence  of major market movers, focus is likely to remain on developments in Greece ahead of the Eurogroup meeting on Wednesday, which is expected to approve the second rescue package for Greece if  the Greek government details where it will find the last EUR350m  austerity measures. Chinese producer and import prices for January to be released this morning might show a small increase. ECB’s weekly  bond purchases in its Securities Market Programme  will be announced in the afternoon. China’s vice president will start his official visit to the US today. The 14th EUChina summit will be held later in the week.

Fixed income markets:  Following a nervous close on Friday, this week could prove more positive for the markets. Greece has voted for a new round of austerity  measures with a large majority and the negotiations with the Troika can hopefully progress. In the US we expect to see robust data throughout the week, which should underpin a broadening of the US recovery. If we are right, this should support steeper curves  and a less dovish pricing of the Fed rate path. On the auction front, there will be a full calendar from the EUR issuers with as much as EUR30bn coming to the market from Italy, France, Spain and the Netherlands. .

FX markets:  The Greek  Parliamentary approval  of the austerity measures has already supported the euro and EUR/USD is expected to trade above 1.33 today.  However, the market might be slightly cautious ahead of Wednesday's Eurogroup meeting where the second bailout package for Greece is expected to be approved. The weekly CFTC data released late Friday showed that bets against the euro have fallen by approximately 10% as of 7 February, and at the same time the market has scaled back  its aggregated USD holdings  significantly by one-third. The position data show that there is less concern
about the euro now and that the speculative flows are moving towards riskier currencies.

The latter is also supported by low FX volatility that in general is back at a level not seen since before the collapse of Lehman in 2008. 

Scandi Daily

There are no major releases out of Scandinavia today