Europe’s markets started the new week in the same vein they finished last week, pressured by rising concerns about the deadlock in the Greece bailout talks, and continued weakness in German bond markets which is continuing to push up yields.
Increasingly strident language from both the Greek side and the EU side isn’t helping either,
with officials almost talking over each other with French officials saying that a Greek exit would be no big drama, while Greek Finance Minister Varoufakis calls for a “speech of hope” from Germany for Greece.
For all the sound and fury generated by last week’s speech by Greek PM Alexis Tsipras
to the Greek parliament, last night we found out what the Greek Prime Minister appeared to be so unhappy about, with respect to last week’s proposed deal, put forward by the EU Commission.
It was proposed that Greece’s bailout program get extended until March next year, using funds left over in the old bank recapitalisation fund, to the tune of €10.9bn.
The extra funding would be made available in return for policy overhauls in the form of tax rises and pension reductions
. It turns out it was the strings attached that prompted the Greeks to reject the deal, as they cut across their so called red lines, though the prospect of another tortuous 9 months of what has passed for negotiations since February isn’t that much of an appealing prospect.
Negotiations are expected to continue today
with both sides being urged to strike a deal from all sides, with President Obama particularly insistent yesterday that Greece makes the difficult decisions it needs to in order to turn its economy around.
Concerns about the health of the Chinese economy are also rising
after disappointing May trade data yesterday, and this morning’s latest Chinese inflation data, also points to a weak economy, as CPI inflation saw prices rise 1.2%, down from 1.5%
, while PPI prices slid 4.6%, unchanged from the decline seen in April. The weakness in prices in China as a whole was reinforced yesterday by the decision by the Chinese NDC to cut fuel prices across the board.
The pound had a disappointing day yesterday after ratings agency Moody’s warned that an early EU referendum and exit from the EU next year
might impact adversely on the UK’s credit rating, as if leaving the EU would suddenly mean that the UK would stop trading with Europe.
This is highly improbable given that Europe exports more to us than we export to them
, which is why we have a sizeable trade deficit. It would therefore be in Europe’s and the UK’s interest to ensure that there was no significant disruption to our trading relationship as a result of a “no” vote.
As if to reinforce this point today’s latest economic data is expected to point to an economy that still has a sizeable trade deficit
, with the deficit in April expected to come in slightly lower at -£9.95bn. The economy does appear to be in somewhat better shape than its EU counterparts, on the growth front.
The latest BRC retail sales numbers were expected to show an improvement for May,
after the unexpected decline seen in April of 2.4%, and did so but the improvement was below expectations, with the main improvement coming through a rise in furniture sales.
– the failure to break below the 1.1050 area on Friday has seen the euro rebound back through the 1.1220 area and could well open up another run at last week’s high at 1.1380, and the May highs at 1.1480.
– the failure to move below support at the 50 and 100 day MA’s between 1.5170 and 1.5190 keeps the prospects for a move back through 1.5400 and a return towards 1.5600 very much on the table. A move below 1.5170 argues for a return to 1.5000.
– Fridays fall back below the 0.7300 level turned out to be rather short lived and we could well be set for a retest of the 0.7380 level seen last week. A break through here could well see a retest of the May highs at 0.7485.
– having posted a new multiyear high at 125.85 last week we’ve seen the US dollar slip back quite sharply, falling back through the 125.00 area. This could well argue for a retest of the lows last week at 123.60, with a break arguing for a steeper move towards 122 00.
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