Any Given Sunday
Crunch talks in Brussels to bring about a solution to the Greek debt crisis failed yesterday as they have many, many times before and last chance meeting has been scheduled for Sunday. Let’s hope that the Greek negotiators are better prepared than they were yesterday; turning up without a new proposal, outlining the plan verbally before saying a written version may be available today “possibly”. What’s the rush?
Comments from European leaders saw Greece given little leeway. Angela Merkel again reiterated that there will be no haircuts on Greek debt and that she was not especially optimistic of gaining a deal by Sunday. It seems the French are the main backers of Greece at this current juncture with news reports suggesting public unease is growing in Spain and Holland about further bailout funding.
Relief rally for EUR
Euro is a little stronger this morning on the stay of execution that pushing the negotiations out until Sunday represents. It should fall like a guillotine if Sunday ends with no accord between the two parties.
GBP/EUR was helped lower by a weaker than expected manufacturing number from the UK yesterday that damages hopes of a rebalancing of the British economy any time soon. Manufacturing production fell by 0.6% in May – some of the weakness may have been election related but I maintain that this is an export story. In my view, it is lower demand for UK goods from an embattled Eurozone that is taking its toll.
The busy week just got busier
As if this week hadn’t already been busy enough today is Budget Day here in the UK. We expect today’s announcements are unlikely to change this in the short term. Osborne is set to push ahead with painful cuts while the wind is still in the Conservative party’s sails despite higher tax receipts in the first half of the year making the fiscal picture a little easier.
This front loading from the Treasury underpins our view that there is a lot to be said for monetary policy remaining loose – lower interest rates for longer – in the UK so as to soften the impact of a tighter fiscal consolidation in the coming years. In the longer-term, lower and more stable debt dynamics makes sterling a safer haven from market ructions in Europe or elsewhere in the future. Osborne will start speaking at 12.30pm BST.
China and the Fed in focus
China continues to cause concern. Some banks have already gone on record to say that what is going on in China is more important and potentially more dangerous to the global economy. Chinese policymaking has not been able to stop the slump and pressure will remain on authorities to limit the losses in the near-term. The losses are not contained in China of course, and this situation is causing a lot more contagion than the Greece situation. For example, AUD has continued to lose ground to fresh 6 year lows.
You would think that was enough for the day but we also have the publication of the latest Federal Reserve minutes later today as well as the beginning of US earnings season. With Greece out of the limelight for a couple of sessions we can expect these numbers to take more precedence. I would expect the minutes to maintain the Fed’s stance of being encouraged by the jobs markets while in turn being concerned by the weakness in price and wage markets and tipping their hat towards global growth concerns.
