A Eurogroup meeting this afternoon will see only that latest showdown between German and Greek officials over the latter’s desire for a more suitable aid program. In this game of hard-nosed negotiation it was Greece that blinked first yesterday by asking for a 6 month loan whilst vowing to bring the current bailout package to a “successful conclusion”. The rhetoric of tearing up the agreement and negotiating a new deal for Greece has not been entirely forgotten however.
The latest request from the Greek Finance Minister was subject to finding “mutually acceptable financial and administrative terms”. Within these words Germany however found enough ambiguity to reject the proposal as not being substantive. The media has been full of chat about game theory in the past couple of days with a lot of people talking about the Greek government’s decision to take negotiations to the edge as a classic negotiation move. With yesterday’s rejection of the proposal by Germany we have to wonder whether German Fin Min is he himself playing an absolute blinder and bluffing this hard line.
Angela Merkel is yet to weigh in on the most recent developments, given here preoccupation with the events in Ukraine. It will be interesting to see whether she yanks her attack dog’s chain today or continues to let him growl at the Greeks.
The Eurogroup meeting officially begins at 3pm CET this afternoon but we can expect some market action before then. Comments, headlines and statements are two a penny from these negotiations and we can expect similar to govern markets today. Given the rather binary nature of the situation – Greece gets the support it needs or it doesn’t – and the decay that we are seeing in when a deal needs to be made – Greece’s current EUR172bn rescue programme runs out next Saturday – euro volatility is going to pick up in the coming week we’d have to say.
The single currency is slightly lower this morning following a poor German producer price inflation number this morning that increased fears of a longer run of deflation than officials will be hoping for. Despite its announcement last month, we will not receive the first hit of European Central Bank QE until next month.
Following a good run of news for the UK consumer in recent weeks – falling rates of inflation and rising wage settlements – it is somewhat surprising to see the market looking for a month-on-month fall in retail sales. December’s retail sales numbers were strong as consumers carried on spending the new disposable income that the recent decline in oil prices had afforded them. This in turn followed a strong November, boosted by ‘Black Friday’ sales and promotions. It is then sensible to expect a slight dip in consumer activity moving into the New Year – sentiment around wages remains weak despite improvements in the jobs market through 2014.
GBP/EUR remains close to 7-year highs this morning and absent a deal in Greece this weekend we find little reason to see these gains being retraced anytime soon.