Back and Forth on Greece
There is something of The Benny Hill Show to the latest round of news from the Greek debt talks. An unnamed official from the Greek delegation yesterday told reporters that Greece and its creditors had started crafting a ‘staff level accord’. Seeing the words ‘agree’, ‘Greece’ and ‘accord’, traders swung into action, buying the euro only for the dream of seeing this Sisyphean task end evaporate in front of their eyes.
Once again I am writing a morning report bemoaning the lack of agreement on Greece. A ‘staff level accord’ may be being drawn up – an agreement between Greek officials and the European Commission yet to be endorsed by the Eurogroup or the IMF however is worth very little. The clock continues to tick ever onwards. The European single currency is higher through the Asian session, however, on the closeted belief that some progress may be found before the weekend. We also have Italian consumer confidence at 09.00 which should run higher on the improved retail outlook.
Euro rebounds slightly overnight
Some of the euro strength is also a symptom of a weaker USD. Dollar crashed higher across the board yesterday, driving JPY to a 12 year low as heavier bets are made that, after a brief wobble in expectations, the Federal Reserve will be comfortable enough to raise rates this year. In our view, this will take place in September.
UK GDP to improve to 0.4%
The highlight of sterling's week will be this morning’s GDP announcement from the UK at 09.30. This is the first revision to Q1’s output numbers and we hope it will see a slight improvement from 0.3%.
As we wrote at the time, Q1 2015 was the slowest three month period of growth in the UK since the last quarter of 2012. Industrial and manufacturing numbers from the UK economy through January and February had been poor and for once, the services sector has not been able to make up that deficit.
Since the initial reading was released, a week or so before the election, the picture has changed a shade. Retail, services and construction data has improved, notably in March, and that should drag the overall number for the three months from January higher. It still holds that I would like to have seen stronger household consumption through Q1, with lower energy and fuel bills helping the pockets of average consumers. Wages are rising in real terms and unemployment is falling and this should continue to allow for extended growth through the rest of 2015.
I am with the consensus in expecting a figure of 0.4%, a 0.1% increase from the first release.
Commodities bringing high yielders higher
Elsewhere, markets were left relatively unchanged by the Bank of Canada’s decision to hold interest rates at 0.75%. CAD has strengthened a little overnight, alongside other commodity currencies, as oil, iron ore and other commodities have gained in value. Yesterday’s Bank of Canada decision was not a surprise – nobody expected a policy move from Governor Poloz or the MPC – but the relative moves in inflation, growth, commodity prices and export conditions will necessitate further policy loosening from the Canadians, Australians and the New Zealanders through the rest of the year.
