It was nice to have a weekend devoid of a summit, meeting, or urgent assembly on the issues within the world economy and the open so far has been rather staid as a result. This time last week we were still running over the details of the Greek election. With a government now formed however, the really hard part starts. The troika of the EC, ECB and IMF were due to be in town today but following both Prime Minister Samaras and Fin Min Rapanos both being taken ill towards the end of last week, the visit has been delayed.
Greece is obviously looking for some easing of the terms on the bailout arrangement while those holding the purse strings, namely the Germans and their Fin Min Wolfgang Schaeuble, are reluctant to agree. While the Greek problem is nowhere near sorted it has dropped down the pecking order somewhat in the past few days.
It is Spain of course that is now front and centre although recent movements in bond markets have been welcome. The yield on 10yr debt has fallen back to around 6.4% which is still too high in the grand scheme of things, but much lower than the 7.2% that we had seen at the beginning of the week as politicians worried over access to market funding.
News has also been quiet out of Spain over the weekend although we expect that the country will finally ask for a banking bailout at some point during the day following the independent audit done last week that suggested around EUR60bn would be needed to shore up the nation’s financial sector.
US data was also fairly quiet last week given the Fed’s decision to merely extend Operation Twist and not plump for any more asset purchases. The dollar has remained slightly bid on that news and has pushed EURUSD down towards the range lows in the past few session while GBPUSD also trades heavily.
While the data calendar is quite quiet this week we do have an EU summit this week which will only add further political uncertainty to the mix. Market participants will be looking for disappointment from the get together with bets against the euro likely to increase throughout the week.
Sterling is pretty dull to start the week although Bank of England member David Miles has become the first member of the MPC to publically change his vote from June’s. Miles voted for £25bn extra QE in June but in an article in today’s FT says an additional £50bn would be appropriate. We are looking for the Bank of England to expand QE by £50-75bn at its July meeting.
Have a good day.
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