Awaiting agreement on Greece, turns investors cautious

Investors are getting a bit cautious as they await the third round of talking between Eurozone finance ministers on Greece. Major European indices are mildly lower at the time of writing but loss is so far limited. US futures also point to a slightly lower opening, which is natural for digesting the sharp gains last Friday. Sentiments are also weighed down a little by news that the Catalonia election in Spain was won by a pro-independence parties. Indeed, nearly two-thirds of votes were for more extreme parties which want a referendum on Catalan independence. Though, the Spanish government had already made clear that a referendum is unconstitutional. Data fro Europe saw German Gfk consumer sentiment dropped from 6.3 to 5.9 in December, comparing to expectation of 6.2. Swiss employment level rose more than expected to 4.12m in Q3.

Main focus today will be on the meeting between Eurozone ministers in Brussels on Greece. This is the third attempt this month to agree on a deal that would release the next tranche of bailout fund to Greece, and grant the country a two year extension on the fiscal adjustment program. After a marathon meeting last week, the finance ministers failed to reach any agreement due to some technical complications. Nonetheless, French finance minister Moscovici said over the weekend that they are "very close to a solution" for Greece and "it would be irresponsible not to reach an accord given all the efforts that have been made on all sides."

And, on Saturday, Eurozone finance ministers held a conference call to prepare for today's summit. It's reported that they came up with a way to make up EUR 10b to fill the financing gap due to the two year extension. That include measures like lowering interest rates on the bailout fund, debt buyback and applying central bank profits on Greek bonds. However, it's also reported that the idea to lower interest rates was a main show-stopper to cutting the deal. Meanwhile, IMF has been persistently insisting that Greece needs to meet the debt target of 120% of GDP by 2020, instead of 2022. Euro has been supported by the optimism that a deal would eventually be reached and would be volatile on Greek news in the early part of the week.

In Asia, Japanese yen weakened as the October BOJ minutes indicated further expansionary measures would be needed and some members said that the country's economy entered recession. 2 dovish members, Takehiro Sato and Takahide Kiuchi, suggested changing the language of the minutes to 'the Bank will continue with this powerful easing until it judges that the 1 percent has been steadily maintained'. Yet, the idea was defeated by the majority vote and the wordings remained as 'the Bank will continue with this powerful easing until it judges the 1 percent goal to be in sight'. Yet, this spurred speculations that new members in the central bank after the election would be more aggressive in adopting easing policies. During the meeting the central bank decided to increase asset purchases by 11 trillion yen, announced a new lending program and signed a joint statement with the government on curbing deflation. More in Yen Plunges After BOJ Minutes Amid Speculations Of More Aggressive Easing.

In his speech in Nagoya, the BOB Governor Masaaki Shirakawa expressed worries over the outlook of overseas economy and the impacts on Japan. He also warned that strong Japanese yen would "hurt Japan's economy by leading declines in exports and corporate revenues as well as worsening business sentiment". Shirakawa urged the government to boost domestic investment through various measures such as deregulation.

Latest CFTC data showed that Euro net shorts rose again to 83.6k contracts on November 13, up from 67.1k a week ago. Sterling net long dropped sharply to 8.2k, comparing to 19.3k a week ago, and 30.1k high back in October. Japanese yen net shorts dropped slightly to 30.4k comparing to 40.1k a week ago. But that, yen had 29.3k net longs back in early October. Australian dollar long continued it's steady rise to 68.1k, comparing with 38.4k back in October. Canadian dollar net long, on the other hand, continued its steady decline to 66.11k, comparing to 111.9k back in September.

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