Hope springs eternal
Euro is once again higher this morning as markets seem to be the most optimistic around a deal between Greece and its creditors since the referendum last weekend. Alongside Greece’s proposal to the European Stability Mechanism for a three year loan, the government has also submitted its latest fiscal plans that call for increases in sales taxes and cuts to pensions.
The latter is a big fillip for the creditor; Tsipras has been reticent since the beginning of his term as PM to cut pensions but it seems that he is ceding some ground as we come towards Sunday’s deadline. The bare bones of the proposal are very similar to the deal that was put to Greece by the EU/IMF/ECB on June 26th.
Can the Germans soften their stance?
As we have banged on about through the past few weeks, if we are to not have to come back to this situation in another two or three years then we need to see some form of debt relief from creditors, and pressure is building on the Germans to weaken their ‘all-or-nothing’ line. The IMF started this ball rolling last week and since then the US and the EU President have asked that some ground be given. Germany is not looking ostracised yet but will need to change its stance to keep the EU together.
You can see euro continuing to add value today as traders become more and more optimistic of a deal over the weekend. I would expect that a fair few analysts who had changed their base case to a Greek exit from the Eurozone may be reversing that though the day. There is a lot to do before we can push Greece to the back of our minds; all measures must be voted on by the Greek and German parliaments and gain unanimous consent from Eurogroup Finance Ministers. It isn’t over until the fat lady sings, but she’s eating her chips in the wings.
No change in rates but a change in process from the BOE
Sterling is falling against the euro in light of these announcements out of Greece, but has managed to hold itself up elsewhere. Yesterday’s Bank of England meeting had only one interesting characteristic. From the August meeting, the MPC will announce its decision, publish the minutes and the votes to the decision, and present the new Inflation Report for the quarter on the same day. Markets are going to choke a little on this we would have to say in the first instance. Deciphering the MPC just got a little bit more difficult.
Focus to shift back to the Fed
USD has sold off broadly overnight on the falls in risk aversion, JPY has been tarred with the same brush. Of course with a Greece deal looking increasingly likely in the near-term, the focus of markets can now switch back to worrying itself sick about when the Federal Reserve will raise rates. I still think that September is the most likely month – all we need is a couple of strong payrolls reports between now and then. USD may be in the crosshairs at the moment but is set to come roaring back.
