Sentiments Improved Mildly Ahead Of Greece Election

A couple of developments lifted market sentiments overnight, which carried on in Asia today. But investors remained generally cautious ahead of Greece elections this Sunday. The eurozone debt crisis will definitely be the main topic in the G20 summit in Mexico next Monday and Tuesday. And Reuters reported that G-20 leaders are already "preparing for coordinated action to provide liquidity" if global financial markets worsen markedly after the Greek election." Meanwhile, Chancellor Merkel's office has changed stance in the "European Redemption Pact" and is now open to consider proposals for the EUR 2.3T stabilization fund after having totally rejected it in November last year.

Also, EU offices seemed to have agreed to give room to soften the austerity measures imposed on the debt-ridden Greece. However, despite this, it is still uncertain whether the far-left party, the Syriza party, would accept the conditions if it wins the election. Syriza's leader Alexis Tsipras stated that it would abandon the austerity program, a move that would force Greece to go bankrupt and the country to leave the bloc. There is still much uncertainty lying ahead.

In the UK, the Treasury and the central bank step up measures in an attempt to loosen the credit and financial markets. Over the next few weeks, the government would launch a scheme to stimulate bank lending by offering to loan banks funds at below market rates for a period of perhaps 3 to 4 years. The BOE will also activate the Extended Collateral Term Repo facility which provides 6-month liquidity against a wide range of collateral. Moreover, Governor Mervyn King stated that "the other effect of the euro area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole... With signs of deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing." This signaled further asset purchases would probably be announced at the upcoming BOE meetings.

BoJ left rates unchanged 0-0.1% on unanimous vote today as widely expected. Size of the asset purchase program was also maintained at JPY 70T. The central bank noted "some nervousness" in the global financial markets due to European debt crisis. And it pledged to "do its utmost to ensure the stability of Japan's financial system". Domestically, it said that the economy "has started picking up moderately as domestic demand remains firm, mainly supported by reconstruction-related demand." Assessment of exports and productions was also upgraded and are seen as key factors to assess the local economy.

On the data front, UK trade balance, eurozone trade balance and employment will be released in theEuropean session. Canadian manufacturing shipments, US empire state manufacturing, TIC capital flow, industrial production and U of Michigan sentiment will be released in US session. But markets' mind will stay on Greece.