Even though expectations were low with respect to yesterday’s Eurogroup meeting of EU finance ministers,
with no realistic prospect of a positive outcome, as both sides try and push the limits of what they are prepared to accept, or not accept, I think most people still thought that the talks would last well into the evening, as is the norm with these events.
That they didn’t even get past early stages before collapsing doesn’t bode well, with the draft statement suggesting that the EU remains in no mood to compromise on the basis that Greece has to stick to the agreed program,
and extend it in order to conduct further negotiations. It is this condition which Greece remains opposed to, and was the reason for the break-up of last night’s discussions. The Greek government objected to the “unreasonable” and “unacceptable” text insisting on a bailout extension.
It is also for this reason that European markets look set to open lower this morning
with the divisions apparently as wide as ever.
For now there remains little prospect of this divide being bridged though both Greek finance minister Varoufakis and the head of the eurogroup Dijsselbloem appeared optimistic
that an agreement could be reached by Friday, though there are likely to be many more twists and turns between now and then.
On the economic data front the latest German ZEW survey for February is expected to continue its month on month improvement
with an increase to 55.4 from 48.4 in January and a twelve month high, as the German economy continues to feel the benefit from the recent fall in oil prices and the weaker euro.
We heard over the weekend Bank of England policymaker Martin Weale warn that a rate rise might come sooner than markets expect,
despite the current low levels of inflation, however today’s latest inflation numbers aren’t likely to change market expectations at all in that regard, irrespective of what MPC officials say.
This is largely down to the fact that prices look set to remain on a downward path with today’s CPI January inflation number set to hit a record low of 0.4% year on year
with the monthly number expected to decline 0.8%, while RPI is expected to come in at 1.3%, down from 1.6%.
Core prices, on the other hand are expected to show a slight increase from 1.3% to 1.4%.
Factory gate input prices are expected to decline even more sharply, by 11.9%
as lower prices filter all the way through the supply chain.
It is for this reason that markets expect interest rates to remain low, and given previous experience with respect to the lag effects of falling oil prices, it seems likely that prices could well continue to fall well into the middle of this year
, and provide welcome relief to hard pressed consumers after five years of inflation rising above average incomes.
With the US returning from their President’s Day break we also get the latest Empire Manufacturing survey for February
which is expected to decline slightly to 8.5 from 9.95 in January.
– after another failure above 1.1420 the euro has slipped back finding support at 1.1320. While we remain above 1.1270 the risk remains for a move towards 1.1500 on a move through 1.1420. Range support remains down near 1.1270, with larger support at the 1.1205 level.
– even though we have slid back below 1.5400, while we remain above 1.5280 the risk remains for a move towards the 1.5500 area. Only a move back below the 1.5280 area argues for a move back towards 1.5200 and a retest of the 1.5000 lows this month.
– yesterday’s failure just below 0.7460 keeps the pressure on the downside and support at 0.7370, with a break lower targeting the 0.7250 level. While below interim resistance at 0.7460 the downside pressure looks likely to be maintained.
– last weeks’ break higher proved to be somewhat short-lived with a sharp reversal at the 120.50 level which throws the potential for further upside in doubt. Having pushed below the 118.70 level we could well be set for a move towards the 117.00 level.
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