The chasing of stop losses and a forced covering of short positions was an attractive game plan in the trading vacuum triggered by US Thanksgiving. A truer test of market sentiment will be seen this week as trading volumes increase again. The Eurogroup will meet again on Monday in another attempt to conclude a deal on Greece with another feasting session for addicts of late-night drama and coffee. All sides remain under intense pressure to conclude a deal, break the deadlock and bridge a funding gap in the order of EUR14bn according to latest estimates. Germany and the ECB are continuing to insist that there can be no write-down of official debt and the IMF has insisted that there can be no increase in debt/GDP targets .
The situation is descending rapidly into farce which will severely undermine the credibility with the adoption of accounting techniques that Autonomy would have been proud of. In the medium term, there is no possibility of Greece securing a stable budget situation without a write-down of official debt and all sides know this, but the pretence of a sustainable deal needs to be maintained to shield the German government from domestic hostility. This blatant deception is unlikely to provide a favourable Euro backdrop even if a compromise agreement allows the can to be kicked a little further down the road.
The IMF appears to be willing to compromise on its insistence that the projected debt/GDP ratio is cut to 120% of GDP in 2020 and may allow a figure of 124% compared with around 170% now. The pretence that debt ratios can be projected so accurately and that Greece has any chance of reaching such targets is ludicrous in the extreme, but it will be an important negotiating concession and there are likely to be further compromise measures such as a reduction in interest rates and a change in repayment schedules. There is certainly a risk that a deal will be delayed yet again until December 3rd which would trigger another temporary sell-off for the Euro.
As far as Euro-zone data is concerned, the latest money supply and lending data will be important on Wednesday. There has been evidence of a renewed downturn in money supply over the past few weeks and the data will be watched very closely as continuing weakness and a contraction in lending would increase pressure for further ECB action to loosen policy. The latest Euro-zone unemployment data is due to be released on Friday with markets expecting an increase to another record high of 10.7%.
There are significant US data release during the week, although it is doubtful whether they will have a decisive impact. There will be further distortions from the impact of hurricane Sandy which will lessen the impact and the data is unlikely to have a significant impact on Federal Reserve expectations at this time, especially with the Fed concentrating on the labour market.
The durable goods orders data and consumer confidence releases are due on Tuesday. The latest jobless claims and pending home sales data due on Thursday. In this context, old data may have the biggest impact with expectations that third-quarter annualised GDP will be revised up to around 2.8% from 2.0% on the back of stronger exports. In contrast, the Euro-zone and Japan both reported GDP contractions for the third quarter which will boost potential US capital inflows. This fundamental divergence will continue to provide net dollar support.
The revised UK GDP data will be released on Tuesday and any downward revision would reinforce fresh doubts surrounding the UK outlook. The latest investment data will also be watched closely as the chances of a sustained UK rebound will be extremely low without an improvement in capital spending, but the data overall is unlikely to have a major Sterling impact at this time.
IMOH, Patrick E.
+234 803 616 2613
+234 802 846 3657
No comments:
Post a Comment