The exuberance from the deal reached on Friday of last week that allowed Greece a vital four-month bridge extension on their bailout agreement has begun to fade as the new trading week gets underway. Assets correlated with positive risk appetite are trading with cautious tones as market participants await the list of reforms Tsipras and the Greek government need to submit to their international creditors today, which if approved, will grant Greece the four-month financing extension. While finance minister Varoufakis seems confident Greece’s creditors will approve the proposed changes, the worry is that this list of reforms becomes the latest bargaining chip in the ongoing Greek saga, with Tsipras already walking a fine line and drawing criticism from hard line Syriza members who are already unhappy with the outcome of the negotiations, feeling that Greece has capitulated on too many fronts already. Not only will the outcome of the reform submission today bring about heightened volatility across financial markets, but the discussions over the four-month bridge period and the milestones Greece needs to achieve in order to obtain funding ahead of two crucial bond repayments in July and August will also keep investors on their toes.
The euro has given up Friday’s gains and is back pivoting around the 1.13 handle against the greenback, a product of the Greek euphoria fading and a weaker than expected IFO survey out of Germany. As per survey respondents the Business Climate and Expectations both improved slightly from January (though not as much as previously anticipated), while the current assessment of the economy deteriorated by a modest amount, disappointing considering the results of the recent ZEW survey. The DAX has managed to remain in positive territory, with German equities shrugging off the mixed-bag survey from IFO and instead focusing on the near-term relief of progression in the Greek drama.
The first trading day of the week is a light one for tier-one economic data, though existing home sales for January in the US are due to hit the wires in roughly an hours’ time. Expectations are to see a slight softening from December’s print, with the annualized reading for January slipping back below the 5.0M level. The greenback has begun the week on firm footing, and could receive another jolt should the housing data come in with a hotter than expected reading. The pop in the DXY can be attributed to the weakness witnessed in the euro, but also as market participants’ position ahead oftomorrow’s semiannual testimony to the Senate Banking Committee by Janet Yellen. There is potential for the dovish interpretation of the January FOMC minutes to be corrected by Yellen tomorrowshould she outline a mid-year rate hike is reasonable given the domestic economic conditions in the US, along with the fact that some of the headwinds associated with global growth on an international basis appear as if they are getting ready to subside.
As we head to print the loonie has buckled under the renewed vigor in the greenback, struggling under the weight of sagging equity futures and front-month WTI that has tumbled to change hands below $49/barrel. The sting from Friday’s retail sales numbers has yet to subside, with additional pressure coming from M&A activity after reports were released that Canada’s Valeant Pharmaceuticals agreed to acquire Salix Pharmaceuticals in an all-cash deal valued at $10.1bn USD. USDCAD has is trying to establish a foot hold on the north side of the 1.26 figure ahead of the opening bell, with a bullish break of the downward trend-line put in place after the late-January high and the subsequent consolidation period.
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