Accelerated Greek privatisations signal progress on approval of next aid tranche
EFSM bond issue to add to EUR support
Norway GDP disappoints but we still like short GBPNOK, targeting 8.90
While markets yesterday continued to trade weakly on more negative Eurozone headlines, the absence of any significant new negative news shocks since US markets went home last night has enabled EURUSD to build on its nascent recovery off Monday’s sub-1.40 intra-day lows. The lack of any meaningful decline in the latest German Ifo readings has helped here. AUD and other commodity currencies are also back off their Monday lows, with oil back higher aided in part by the publicity afforded some bullish price forecast from a prominent US investment bank. Note that if the talk of $120+ Brent crude (vs. $111 now) – and which is being heard in plenty of places including from BNP Paribas’ own commodity analysts – then the weight this will place on real consumer incomes cannot be overstated in terms of the potential for the current US growth soft patch morphing into a full-blown double dip. If that happens, perhaps QE3 is not dead and buried after all. Not our current call, but not one to be rejected lightly either.
Greece remains the focal point for the EUR, and the opposition to the latest agreed round of austerity measures/accelerated privatisation by the conservative opposition leader is unwelcome in light of comments from Greece yesterday that the IMF has made clear it will not disburse the next tranche of funds under the current EFSF/IMF programme without assurances from the EU on 2012 funding needs. The threats remains that politicians just might call the ECB’s bluff and agree to some form of Greek debt restructuring (see today’s Market Focus for more on this). The IMF claim, if accurate, puts an absolute deadline of mid-July (when Greece is expected to run out of cash) on the process of securing European agreement on further steps; in practice the deadline will be the EcoFin meetings on June 20 and heads of state meet on the 24th.
In another potential positive for the EUR, Bloomberg reports that the EFSM is to issue EUR 4.75bn of 10-year bonds today to help fund the bailouts of Spain and Portugal. Demands for recent EFSM/EFSF issues has been strong; another solid oversubscription may lend some further support to the single currency. EUR has bounced off the 100dMA – now at 1.3977 – and has triggered stops above the 1.4070 level ands above 1.4100 a push back to the 1.4150 area looks likely.
Our recommended short GBPNOK trade of the week hasn’t received the love we had hoped for from Norway’s Q2 GDP release, coming in at 0.6% vs. +0.8% expected, though this does not alter or view that the next Norges bank tightening is likely in Q3. Worse than expected UK public finance data; Moody’s threat to downgrade 18 British banks; and comments from BoE’s Paul Fisher that he is open minded about more QE, have given the trade some support from the GBP side, as have higher oil prices from the NOK side. With the SNB’s Jordan out bemoaning latest CHF strength last night, the European alternatives to the euro when the latter is under stares are limited, and SEK and NOK remain favoured in this regard and we stick with the short GBPNOK trade.
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