Greek tragedy continues
A Greek version of ‘he said, she said’ continued yesterday as a lack of agreement between either side of the Greek debt divide remained firmly in place. Despite Greek Finance Minister Yanis Varoufakis’s assertions that Greece is “very close” and “a matter of one week” away from a deal, the markets seems to be happier to believe the EU’s Economic Affairs Commissioner Pierre Moscovici who simply told reporters “we’re not there yet”. Varoufakis’s admission that Greece and its creditors are yet to agree a deal on pensions, labour market laws or budget targets are surely reason enough to doubt a deal being likely anytime soon.
The next EU summit of European leaders is due this Thursday and Friday and the hope was to have a deal done by then; such progress would be miraculous in my eyes. The bond markets agree and pushed the yield of the Greek 10-Year bond to its highest since January.
A Greek newspaper has supposedly got hold of a proposal from the EU that would raise around EUR5bn. Most of this is VAT adjustments, but also includes lessening pressure on the Greek government to raise its budget surplus – taking in more in taxes than it spends – dramatically in the coming years. More importantly, it also suggested a disbursement of around EUR3.7bn to Greece to aid its liquidity issues. None of this can be confirmed of course and I think we will have to wait on the EU leaders meeting later in the week to see if this is anything more than pie in the sky.
UK prices to fall lower
Today’s UK CPI and RPI numbers at 09.30 start a look at inflation through developed economies this week. We will receive the Eurozone’s April number at 10am with the US’s and Canada’s both due on Friday. Market expectations are for a year-on-year figure of 0% on UK CPI despite a 0.4% rise on the month – fuel and food prices are obviously significantly lower than they were this time last year but the recovery in energy prices in the past eight weeks or so means that the month on month picture will be driven higher.
I think there is the possibility of a negative yearly figure as a result of the strength of the pound and subsequent lower import prices. Once again – and given the opacity that the falls in oil and food prices are having on inflation measures – we will be focusing on the ‘core’ element. Should these readouts – that do not include oil or food measures – remain strong then that is cause for optimism and will exacerbate demands for some form of monetary policy normalisation sooner rather than later by the MPC.
EU prices to move back into positivity
Eurozone CPI is also expected to hit 0% year on year, which would be the first month this year that prices haven’t been in deflationary territory. Likewise, the month on month number is expected to turn positive on the increase in oil prices. German ZEW investor confidence is also due this morning, with another deterioration in sentiment expected.
RBA minutes add little
The first set of central bank minutes due this week has had little impact on markets. “Members did not see this as limiting the board’s scope for any action that might be appropriate at future meetings,” the Reserve Bank of Australia’s latest minutes told us. This follows a cut in rates to 2% at the beginning of the month. AUD/USD is flat on the session.
