Greek parliament votes yes
In the end, Greece’s parliament voted to accept austerity conditions in line with obtaining a third bailout rather easily last night. 229 members of the 300 strong parliament voted to approve new tax rises and spending cuts with 32 members of the main Syriza party voting against Alexis Tsipras. With the vote in the bag and few fears that other European state parliaments will trip up the deal, focus now shifts to the European Central Bank.
The ECB meets later today to decide its latest interest rate and quantitative easing policy but markets will instead be focused on whether now deems it appropriate to turn on the taps and allow fresh liquidity into the Greek banking system. A decision today could allow Greek banks to reopen next week although one would expect that daily withdrawal limits would remain and transfers out of the country would continue to be prohibited.
GBP and USD the clear currency winners
The single currency touched fresh lows overnight as the vote came in. Greece’s political landscape remains ripe for turmoil and euro losses are largely down to the belief that with those 32 defections the Syriza-led coalition has lost any form of majority it had.
Dollar and sterling strength, however, are the main stories in markets as they both power on against the euro and commodity currencies. Both the Bank of England and the Federal Reserve have increased the rhetoric around rate rises in the past 24 hours, while the Bank of Canada yesterday surprised markets with a 25bps rate cut.
Following Carney’s comments to the Treasury Select Committee, Fed Chair Janet Yellen followed that up by reiterating to lawmakers in Washington that the Federal Reserve is on course to raise interest rates at some point in 2015. GBP was also helped by a strong labour market report that showed wages rising at the fastest pace in five years and a 30,000 person pick up in full-time employment.
Commodity currencies spanked by CAD
On the other side of the currency coin are the commodity currencies which are continuing their 2015 to forget. The Bank of Canada unexpectedly cut interest rates yesterday to 0.5% as the battle against lower oil prices remained front and centre. Unfortunately for currencies such as AUD or NZD, they get tarred with the same brush and trade altogether as one complex; if one cuts rates, then the chances of the others also cutting increases.
NZD and CAD both fell to fresh seven year lows yesterday with the former continuing its declines overnight as milk prices maintained their weeks of falls. Terms of trade for NZD are very negative at the moment.
Today’s markets will once again rely on Greece for their direction with negotiations now switching to the EUR7bn bridging loan that is needed to ensure that debt payments to the European Central Bank are made.
Is the UK going to have contribute 1bn?
I received a lot of questions yesterday about how and why the UK could be on the hook for cash to Greece. Simply, blame the lawyers! It depends on which rescue fund is used to provide this bridging finance to Greece. The European Stability Mechanism has been used previously and that is funded by the Eurozone while the European Financial Stability Mechanism is funded by the EU as a whole.
The EU-wide EFSM was set up at the beginning of the Eurozone crisis with €60bn in lending capacity. When the Eurozone moved to set up a new, permanent rescue fund for the currency union’s 19 members, David Cameron to his credit won agreement at an EU summit that the EFSM would never be used again for Eurozone rescues. EU lawyers however are arguing that that deal was a political agreement, not a legal one, and hence why they’re coming for the cash. We would end up contributing 15% of EUR7bn which works out at EUR1.05bn however we have already paid this money. No new money would be pledged.
