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Down But Not Out – Greek Bailout Talks Stall

With the majority of North America returning to their desks after the bank holidays in observance of President’s Day in the US and Family Day in most parts of Canada, risk appetite has managed to recover from yesterday’s setback, though price action continues to be dominated from headlines surrounding the progress of the Greek debt negotiations.  Asset classes correlated with positive risk appetite struggled yesterday after talks between the EU and Greece broke down, with Greece rejecting the draft proposal put forward by Brussels saying that the insistence on an extension of the current program was unreasonable.   Though at first glance the inability to broker a deal with the 11th hour closing in had market participants looking to shed exposure to high-yielding assets and the euro, there were some rays of hope given the positive outlook from the Greek finance mini

ster that a deal would be reached before the end of the week.

Varoufakis painted a far more optimistic picture then what had been telegraphed from the Eurogroup, stating that he is willing to do whatever is required to reach a deal, and that he is certain that Brussels and Greece will be able to agree on appropriate phrasing of the bailout extension.   This doesn’t seem too farfetched considering Varoufakis said he had been willing to sign the draft agreement presented by EU Economics Commissioner Moscovici, though this was superseded by the proposal put forth, and ultimately turned down, by Eurogroup President Dijsselbloem.   While there will no doubt be many twists and turns in what is unlikely to be the final act of the Greek tragedy in the weeks ahead, financial markets are optimistic some sort of bailout extension language will be agreed upon before funding to Greek banks is cut off from the ECB’s emergency liquidity assistance program, with equity futures recovering from their overnight lows and EURUSD popping back above the 1.14 handle.

Heading across the channel, the UK reported inflation figures earlier this morning, with the headline reading hitting the lowest level since records began in 1989, as falling energy prices put downward pressure on CPI figures.   The m/o/m drop of 0.9% in January was slightly steeper than the 0.8 contraction that had been expected, but the annualized figure of a 0.3% increase when compared to twelve months ago was bang on the median analyst estimate.   Given that Bank of England Governor Mark Carney telegraphed last week in the central bank’s inflation report that over the short-term inflation could fall below zero due to tumbling oil prices, but that consumer prices will rebound to hit the bank’s 2% target over a two year timeframe, the pound actually gained slightly as a result of CPI coming in at the pace expected, though GBPUSD has seen those earlier gains retraced and the pair is essentially unchanged in the mid-1.53s.

As we get set to kick the holiday-shortened trading week, there are a few major events to be mindful of in the coming days.   The yen is weaker against the big dollar this morning with USDJPY grinding higher in into the high-118s, still having a hard time finding traction after fourth quarter GDP figures that were released over the weekend came in below estimates.   Though the rebound from the dreadful third quarter with an annualized 2.2% print in Q4 has alleviated pressure on the Bank of Japan to step up their asset purchase program at tonight’s policy meeting, the strength of the pop in economic growth fell well short of the 3.7% expected from economists, and continues to provide scope for an expansion of the program later this year.

Also on the agenda for this week, is Wednesday’s release of the minutes from the January FOMC meeting, where the relatively hawkish statement moved closer to telegraphing a rate rise by the middle of this year.   There has been a chorus of non-voting members on the FOMC that have been on the speaking circuit lately advocating for the first rate rise to occur around June of this year, and given the minutes tend to balance out the voices of all members as opposed to the decision-making core of Yellen, Dudley, and Fischer, we would tend to be cautious the minutes as interpreted my market participants as hawkish given the Committee’s reassessment of the labour market and the removal of the “considerable time” phrase.   Despite the potential for a hawkish slant to the FOMC minutes on Wednesday, the DXY is trading soft this morning while oil hangs on to last week’s gains and the loonie tries to establish a foothold with USDCAD on the south-side of 1.14.

Further reading:

EUR/USD shoots up on reports that EU blinks first on Greece

German ZEW Economic Sentiment at 53 – slightly below expectations

 

 

Anat Dror

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer