Markets main focus today will be on Greece, who will have a last ditch meeting with eurozone creditors regarding the financial aid. Greek submitted a proposal for a six-month extension yesterday but that was already rejected by Germany. Greek finance minister Yanis Varoufakis also appeared to stand firm on refusing on continuing with the austerity and reform that were committed in the bailout.
Yanis said that "we have already done more fiscal tightening than has ever been done by any country in peace-time, and Greece is still in depression with declining nominal GDP". And, "there is no macro-economic argument that can be made for further tightening." He criticized the reasons for the austerities were just "outlook ideology or on punitive grounds.
Without an agreement, Greece will be running out of cash next week as the bailout expires on February 28. That could eventually lead to default and exit from the eurozone. But some analysts noted that markets, while cautious, are not pricing in much chance of an exit. It's noted that the market value weighted measure of Greek bonds was at 90 at Wednesday close.
That was 23% above the five year average. And way above the 17.2 level reached back in 2012. It's seen as a sign that markets are expecting a solution finally. Nonetheless, it should be noted that a market won't crash if you are expecting it would crash. Markets only crash at the time traders are all optimistic. And, everyone would remember that just a month ago, SNB removed the Franc cap when nobody ever expected so for a little bit. So, the calmness in Greek bonds does leave much room for violent moves.
The ECB released its first minutes on monetary decision. The monetary policy "accounts" explained in details the central bank’s decision of the extension of asset purchases by EUR 60B/month announced on January 22. As mentioned, the eurozone is facing "the risk of too prolonged a period of too low inflation. This, in turn, raised the possibility of deflationary forces setting in, which would not permit an attitude of ‘benign neglect’". The accounts also showed that ECB’s chief economist Peter Praet initially proposed 50B euro/month but the member eventually agreed to have some front-loading so as to "accelerate the impact". The move was also in part a response to market expectations as the ECB was concerned that "a large part of the very substantial financial price adjustment observed over recent weeks would most likely rapidly unwind if no monetary policy action were taken at the current meeting".
On the data front, Japan manufacturing PMI dropped to 51.5 in February. German PPI dropped to -2.2% yoy in January versus expectation of -2.0% yoy. Eurozone will release PMIs today while UK will release public sector net borrowing and retail sales. Canada will also release retail sales later in the day.