As we come to the end of this rather tumultuous quarter we have to wonder how much has actually changed. While the European Central Bank has launched a quantitative easing program and the Swiss National Bank has withdrawn its de facto weakening of the Swiss franc, a lot of the FX landscape remains very similar to what we started the year with.
Greece maintains lack of consensus on reforms
Last night showed us that the Greek government and the European architects of Greece’s bailout program remain very far apart on what needs to be, and can be done for the former’s economy. On every agenda item of what the austerity and bailout program needs, Greece disagrees. The program calls for a VAT increase on the tourism sector, the Greek government has said no. Pension reform has been shot down and public sector wages will remain protected. The wider effect is that the budget surplus – the difference between what the government is spending and what it is receiving in the form of tax revenues – should be 3% of GDP in this year and 4% next year according to the program. Greece says they can do 1.5%.
We have known these were the rough thoughts of both parties for a while now and so all the past 24 hours has done is show just how slowly these negotiations are progressing. After addressing the Greek parliament, PM Tsipras was told by opposition leader Antonis Samaras “if you touch deposits, if you lead the country on the brink of exiting the euro area, if you legislate more taxes, we will stand against you,” but “if you want, in the 11th hour, to save this country together, we will back you.” Nobody is quite sure where Tsipras stands.
Euro looking unloved
The euro is lower this morning thanks to this lack of progress, despite some strong data from Germany in the past 24 hours. Inflation rose by 0.5% in the past month, besting the 0.4% that the market expected, while this morning has seen retail sales rise by 3.6% on the year against a 3.4% expectation. Although it sounds like we are labouring a point, it is not Germany that we are worried about, and we would be happier for the prospects for the single currency if France, Spain, Holland or Italy were posting these numbers. German unemployment with European and Italian inflation measures are all due this morning.
That being said, we remain doubtful on how much support the euro can garner from the economic data. Policy from the European Central Bank has set to weaken the currency via negative rates and asset purchases and the European economy is starting to benefit.
UK GDP set to be confirmed at 0.5%
Readers of yesterday’s booze sodden weekly update know that we are thinking that Q4 GDP will hopefully be seen as the nadir of the UK economy on this recent run of strength. 0.5% is by no means a poor reading but sits at nearly half the growth rate that the UK economy had been pushing out through the remainder of the year.
The story still holds true that I am looking for the UK economy to push onward on the basis of the support for consumers being afforded by the low levels of inflation. Similar help is being given to investment in the economy from our belief that the Bank of England desires to maintain interest rates at their current level into 2016.
What to know what’s going to happen next quarter?
Our webinar on Q2 and how to protect yourself is taking place tomorrow afternoon. As it stands, the markets are starting to get nervous about the UK election in May, while weighing up the prospects of an interest rate rise in the US in June. Throw in another Greek debt deadline and the slowing of the Chinese economy and Q2 could easily match the past three months for volatility.
Join World First’s Chief Economist and Head of Currency Strategy Jeremy Cook for a no-nonsense look at what Q2 could mean for you,
