Markets waiting on Greek reforms proposal

Market Brief

Equity markets are higher in anticipation of Greece presenting its reforms proposals. On Friday in a last minute deal, Greece and its international creditors have agreed to an extension of the current bailout program for up to four months. However, the agreement is conditional on the Greek government providing clear outline of reforms today. The Nikkei rose 0.73%, the Hang Seng was flat and the ASX rose 0.45%. US 10-yr yields held at 2.104%. Shanghai and Taiwan was closed for the holiday keeping trading thin. The optimism has carried over as European shares are heading higher with UK and German indices near their record highs. FX markets were unchanged opting to wait for the Greeks proposal. EURUSD continues to come under selling pressure falling to 1.1347 from 1.1431. USDJPY spent most of the session grinding lower to 118.90 before catching a quick bid to 119.20 at the European open. There is growing discourse in the BoJ as now three members have publicly expressed doubts that that central banks can hit its inflation target due to falling oil prices and slowdown in underlying prices. AUDUSD fell back to 0.8729 as the Lunar New year holiday limited trading. New Zealand’s credit card spending increased 6.2%y/y in January from a solid rise of 4.5% in December. NZDUSD was range bound between 0.7510 and 0.7540 with support at 0.7500 holding traders attention.

The headlines revolving around the Greek deals are coming in hot and heavy as no formal agreement has been finalized. There are rumors that Germany continues to reject the plan as clearly hard negotiations are going on. Greek officials have stated that the reforms to be delivered today will be accepted by the EU and creditors. Interestingly, internationally being praised for showing flexibility, while at home the new Greek government is being attached for selling the “illusions” to voters. According to Bloomberg, it was Spain’s Luis de Guindos took the harshest line with Greek Finance Minister Yanis Varoufakis during negotiations. It was suggested that Luis de Guindos demanded that Greece adhere to the existing bailout plan as a precondition to access official financing. This make sense considering that Spain is also under stick austerity rules and the rise of Syriza in Greece has fueled Spanish opposition Podemos.

Traders will be watching German Ifo expectations are likely to rise from 102.0 to 103.0, current assessment to advance from 111.7 to 112.5, and business climate improve from 106.7 to 107.7. In the US existing home sales should show a slight decline to 4.96m suggested by the recent fall in pending sales. According to IMM data speculators continue to trim USD long position pushing net longs to its lowest level since December. We anticipate a marginal USD sell-off should Greek reform proposal gets accepted today but in the longer run remain constructive on USD.