The Euro fell out of bed in Asia before regaining altitude later in the day as the market mulls what Greece will do now that the ball is back in its court. Meanwhile, it’s FOMC week!
he uncertainty surrounding the “Greek question:” continues after this weekend’s conference of EU finance ministers, as the outcome of the meeting was a directive to Greece to get its fiscal house in order and move forward with new austerity measures and asset sales if it wants to get the next tranche of the bailout money from the original bailout plan. Now the onus is on the shaky Greek government to see if it can get the new package of measures passed. Prime minister Papandreou faces a confidence vote “late tomorrow” that will help determine the outcome. Only once Greek politicians have proved compliant will the EU meet and decide on the form of a new 3-year deal some time in July. The stakes are rather large here for the next couple of days for Europe and the Euro and we have to remember that all of this recent furor is related to a country that only represents some few percent of European GDP.
The noise elsewhere at the EuroZone “periphery” (basically everything except Germany) has hardly been quiet. For example, the FT is running a story on legal challenges to a Bank of Ireland attempt at raising new capital and forcing losses onto junior bondholders, a plan the EU has criticized. And ftalphaville has a post discussing what it sees as the return of the “sovereign-bank loop” in Spain, where banks are buying Spanish bonds to use as repo collateral for liquidity from the ECB. This is a likely sign of distress. There has been growing concern of late on Italy’s debt position as well of late. In recent days, the spread on Italy’s 2-year debt to Germany’s has widened to its worst level since early this year and the spread on 10-year debt is at almost 200 basis points, nearly matching its worst levels since the entire sovereign debt crisis began in late 2009.
The negative developments of the weekend saw Friday’s squeeze in EUR positions partially reversed today, though there seems to be plenty of two-way interest ahead of the important developments in the pipeline this week. Ahead of the US open today, the Euro is rallying again - perhaps on attempts at reassuring words from the EU’s Juncker (on Portugal and Ireland and his confidence that the Greek parliament “won’t say no”.) and the ECB’s Rehn.
So the question now is: will the Greek politicians bow to the pressure or “pull an Iceland”. The market is pricing in very slim odds on the latter, but even if we get Greece acceptance of new measures, the market must be getting wary of how these situations seem like the Herculean task of slaying the hydra, where the elimination of one threat seems to lead to the sprouting of several new ones.
Risk picture still souring - Aussie resilient
Our measures of risk willingness suggest very high levels of concern here, and we have noted that the S&P500 moving average, a generic barometer for risk is trading close to its 200-day moving average for the first time since last September. In China, equities have been hitting the skids for days, and there is news of liquidity difficulties in Chinese money markets. Meanwhile, Brent crude oil prices are beginning to slide in sympathy with the enormous slide in the US WTI crude grade. Copper prices are also looking a bit shaky. Given the last set of circumstances, it is rather remarkable that AUDUSD has so far managed to stay within the recent range. There may be considerable stop loss build-ups not far below recent lows that could be triggered if these risk-negative developments don’t reverse soon. Watch out for the RBA minutes from their most recent meeting in the Asian session tonight. Stevens somewhat hawkish recent rhetoric notwithstanding, the market’s year forward expectations have dropped to -2 bps. Can Aussie maintain a calm face through all of this volatility?
Our measures of risk willingness suggest very high levels of concern here, and we have noted that the S&P500 moving average, a generic barometer for risk is trading close to its 200-day moving average for the first time since last September. In China, equities have been hitting the skids for days, and there is news of liquidity difficulties in Chinese money markets. Meanwhile, Brent crude oil prices are beginning to slide in sympathy with the enormous slide in the US WTI crude grade. Copper prices are also looking a bit shaky. Given the last set of circumstances, it is rather remarkable that AUDUSD has so far managed to stay within the recent range. There may be considerable stop loss build-ups not far below recent lows that could be triggered if these risk-negative developments don’t reverse soon. Watch out for the RBA minutes from their most recent meeting in the Asian session tonight. Stevens somewhat hawkish recent rhetoric notwithstanding, the market’s year forward expectations have dropped to -2 bps. Can Aussie maintain a calm face through all of this volatility?
Looking ahead
We’ll need to remain glued to the news services in coming days, with the potential for the Greece situation to tilt either way. Meanwhile, it’s FOMC week and we have seen clear signs of decelerating US economic indicators, a development that hasn’t been given much playtime in the recent Fed rhetoric, which still seems to hope for a strengthening in the economy again later this year. With the QE2 bond-buying program expiring next Thursday, every Fed hint and twist in rhetoric will be analyzed to death. It would seem the risk is growing of the expression of worry about the economy in this Wednesday’s FOMC statement.
With enormous uncertainty and two-way risks everywhere the eye can see this week, It seems EURUSD’s zany overnight action into this morning could be a microcosm for how this nervous week may play out. With that in mind – be very careful out there.
We’ll need to remain glued to the news services in coming days, with the potential for the Greece situation to tilt either way. Meanwhile, it’s FOMC week and we have seen clear signs of decelerating US economic indicators, a development that hasn’t been given much playtime in the recent Fed rhetoric, which still seems to hope for a strengthening in the economy again later this year. With the QE2 bond-buying program expiring next Thursday, every Fed hint and twist in rhetoric will be analyzed to death. It would seem the risk is growing of the expression of worry about the economy in this Wednesday’s FOMC statement.
With enormous uncertainty and two-way risks everywhere the eye can see this week, It seems EURUSD’s zany overnight action into this morning could be a microcosm for how this nervous week may play out. With that in mind – be very careful out there.
Economic Data Highlights
- New Zealand May Performance of Services Index out at 52.8 vs. 52.6 in Apr.
- New Zealand Q1 Manufacturing Activity rose +2.9% QoQ vs. +3.0% in Q4
- UK Jun. Rightmove House Prices rose +0.6% MoM and +!.1% YoY vs. +0.7% YoY in May
- Japan May Adjusted Merchandise Trade Balance out at -¥474.6B vs. -¥538.5B expected and -¥469.6B in Apr.
- Germany May Producer Prices out at 0.0% MoM and +6.1% YoY vs. +0.1%/+6.3% expected, respectively and vs. +6.4% YoY in Apr.
- EuroZone Apr. Current Account out at -5.1B vs. -3.0B in Mar.
- EuroZone Q1 Labor Costs rose +2.6% YoY vs. +1.9% expected and +1.5% in Q4
Upcoming Economic Calendar Highlights (all times GMT)
- Australia RBA Minutes (0130)
No comments:
Post a Comment