Surprise! Another Key Day For Greece, And Euro Is Higher
It’s a day ending in ‘y’ so it must be another crucial day for the Greek debt crisis. EU leaders and finance ministers will meet in Brussels once again today to attempt a compromise over the management of the Greek debt pile. Needless to say the rumors and noises from European politicians have been less than optimistic. The German Finance Minister Wolfgang Schauble said he was sceptical that an agreement with Greece would be found today however markets have taken the euro higher this morning.
Tsipras and Varoufakis have until the end of the month to negotiate an extension of credit terms for Greece. The current bailout package expires on February 28th. A deal today would give other European parliaments just less than a fortnight to vote on the extension and form some kind of consensus and agreement around the rehabilitation of the Greek state.
Late on Thursday the European Central Bank extended the amount of money it was willing to provide to Greek banks in a bid to shore up liquidity within the country. Reports over the weekend suggest that the pace of withdrawal from Greek banks has increased in the past week to around EUR 200 m a day.
As we have said previously we are still optimistic that a ‘fudge’ deal will occur by the end of the month but, as we all know, European politicians need to be horizontal over the precipice for deals to be actually made. I’m cancelling any plans I had for Feb. 27th just in case a 13 hour meeting is called to avert a disaster.
With US markets closed for the President’s Day holiday, we can expect further sideways trade for the session. dollar has spent a good deal of time on the back foot in the past week; a function of some rather poor data last week and a belief that maybe the party for the USD bulls may be over for now.
The pound is in fine fettle this morning after the Confederation of British Industry raised its growth expectations for the UK economy through 2015/16. The main driver of this increase in output is elevated consumer spending following the pick-up in disposable income that the recent fall in oil prices has allowed. The report believes that this push of lower inflation will continue through the year and that the Bank of England will stand pat on interest rate increases until Q1 of next year. It seems the CBI and myself are in agreement on the UK economy.
GBP/EUR made fresh seven year highs on Friday and sits just below that mark this morning while GBP/USD is most certainly eyeing up the 1.55 level. There is ample scope for sterling outperformance this week given the recent trend of labor market and wage gains, although tomorrow’s inflation readout could surprise to the low side.
The main news over the Asian session was the latest run of Japanese GDP which showed that while the country is no longer in recession, growth is sharply less than had been expected. GDP grew by 2.2% annualized in Q4 against an expected 3.7%. Unfortunately, this means that following a strong 2012/13, last year saw the Japanese economy stagnate as an increase in the sales tax hammered consumer expenditure. We are still looking for more stimulus from the Japanese authorities despite reports to the contrary last week.
