- Eurogroup-IMF dispute over Greece - decision on aid payment delayed again.
- Republicans shift rhetoric on taxing the wealthy.
- Focus today on CPI out of Sweden and the UK and the ZEW survey. Also watch out for Greece selling T-bills.
A decision on paying out Greece’s delayed aid payment has been postponed another week.
At the Eurogroup meeting last night the IMF and the Eurogroup revealed their disagreement on how to achieve debt sustainability for Greece as IMF’s Lagarde and Eurogroup’s Juncker openly discussed the appropriate timetable for Greece to achieve a debt-to-GDP ratio of 120%.
Juncker said the target would be moved to 2022, while Lagarde insisted it should be kept at 2020. A new meeting to agree on a Greek debt-relief plan is now scheduled for 20 November, making it fairly unlikely that today’s ECOFIN meeting will attract much attention.
Importantly, Greece will be in the market today to sell T-bills to bridge what has been coined the ‘Greek fiscal cliff.’ With the ECB refusing to raise the amount of T-bills accepted as collateral from Greece’s banks, worries over the country’s ability to fund itself are weighty. EU’s economic chief, Rehn, has tried to calm nerves stating that Greek banks have improved their cash positions to an extent that they would be willing to purchase the debt of the government still. This will be tested today.
Separately, it appears the Republicans are gradually changing their stance on taxing the wealthy, moving focus to avoid the US fiscal cliff. Romney’s economic adviser, Hubbard, writing in the FT, suggests that the first step of the Congress should be "to raise average (not marginal) tax rates on upper-income taxpayers." He also noted that tax loopholes should be eliminated and a set of popular deductions scraped. Such shifts in rhetoric could improve the political working climate ahead of the New Year deadline.
With the US closed for Veterans Day on Monday the US session has been pretty uneventful. US equity futures saw very limited movements and ended the day largely flat. The mood has soured in the Asian session with indices in the red across the board. US bond yields shedding a few bps this morning. Besides the Greek auction of T-bills, the ECB’s 1M LTRO could get some attention in bond markets today.
In FX markets the dollar has gained against all majors except the yen, underlining that everything but safe havens are moving out of favour as fiscal woes take their toll on sentiment. Notably EUR/USD firmly broke below the 1.27-level overnight to a two-month low. Crude oil prices have also come off somewhat, helped by the International Energy Agency’s annual outlook released yesterday in which the significant production prospects of both the US and Iraq were spelled out.
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