European markets are trading higher this morning and on track to finish the month higher. The month of July has been very colorful with plenty of events with each its own importance. For now, all eyes are focused towards the upcoming economic data which will be released next week, and most importantly, the upcoming deadline for Greece to make its payment of 3.2 billion euros to the ECB, which they do not have.
Yesterday, there were reports that the IMF and the Eurozone have clashed once again over the Greek negotiation package. The fund has suggested previously that the Greek debt is not sustainable and only performing reforms will not help the country to bounce back UK. However, on the other hand, Germany is immensely reluctant and allergic to such an idea and debt relief is completely out of the question according to their understanding. The fund tried to bend the hand of the Eurozone yesterday by threatening that they will not participate in third bailout package for Greece if there is no debt relief.
In so many ways, the IMF is also covering their own back with such a threat because it’s hands are actually tied to release any kind of funds to any country whose debt is not sustainable. The IMF has already made this mistake in the past when they sanctioned the loan to Greece, knowing that it is beyond the country’s ability to pay them back. Hence, during this month, we have seen Greece dragging its knees and heels when it comes to paying the IMF bill.
Germany on the other hand perfectly understands the importance of this threat, but they also know that Bundsbank under no circumstance will agree to sanction any loan or bailout package for Greece if the IMF is not on board.
The recent employment data released in the Eurozone has started to paint somewhat mixed picture. Yesterday, we have seen that Spain and Ireland, both are growing sharply and this is despite higher unemployment in these countries, but the economic engine of the Eurozone- Germany, has not shown very promising economic data recently. The unemployment in Germany ticked up unexpectedly yesterday. This morning German retail sales data have also disappointed with a negative reading of -2.3%. The German CPI reading has shown signs of weakness and the euro zone’s CPI data due later today could also echo the same concerns.
Back in the U.S., rate hike expectations were fired up yesterday after the U.S. GDP data. There was a strong upward revision in the U.S. Q1 GDP back to a positive territory- from -0.2 to 0.6. The advance Q2 GDP was strong as well, but fell a little short of expectations. The most important thing which gained more attention in the GDP data was the personal consumption and consumer spending. Both have been anchored towards the upside and confirmed that the U.S. consumers are finally spending that extra cash which they have in their pocket and saving levels have also dropped. Housing was also important and confirmed that the foundation is becoming stronger, but the industrial sector obviously was under pressure due to the rout in oil prices. This will continue as more and more companies are putting their projects on hold.
Later in the day, we have revised US Uom consumer sentiment data and the forecast is for 94.2 while the previous reading was at 93.3. The Chicago PMI data is also due later and the forecast is for 50.7 while the previous reading was 49.4.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam