Greek Clock Keeps Ticking
In the absence of major data releases and minimal news out of Greece, FX markets were relatively subdued overnight. Negotiations on Greece appear to be gaining momentum, however, as several outstanding issues are getting close to being resolved. Dow Jones reported that Greek party leaders have received the papers on cutbacks from the troika. The deadline for the response from Athens was originally set for noon today but deadlines on Greek negotiations tend to be quite flexible. More importantly, press reports suggest that the ECB is close to agreeing terms on participating in the Greek debt swap. The Wall Street Journal reported that the central bank will swap its holdings at purchase cost with the EFSF, so it won’t take a loss. Crucially, national central banks will not participate as this may be perceived as resembling fiscal transfers, which currently remain barred in the Eurozone on a legal basis. These central banks are holding Greek bonds in their investment portfolios. Despite some provisioning having been made they will be expected to receive full repayment. These plans are contingent upon resolution of private sector involvement, and investors will likely grill the ECB on details during Thursday’s post-decision press conference. Yesterday, consumer credit numbers in the US were also buoyant, rising by over $19bn in December, after a $20.4bn gain in November. Our economists note that this is the largest back-to-back gain since 2001, with figures largely led by non-revolving credit. These figures suggest that credit demand is remerging from the household sector in the US and may prove crucial in driving business expectations up ahead. The JOLTS labour survey out of the US also points to slight gains in job openings as employment conditions continue to improve, consistent with the latest BLS statistics. Ahead today, US mortgage data and Canadian housing starts are due. We also expect more details to surface on how Greece is going to proceed on the bailout and the PSI, but all parties involved must realise that the clock is ticking, and with each passing hour the odds of some destabilising unilateral step will rise. EURUSD traded 1.3233-.3286 overnight, USDJPY traded 76.76-77.15.
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UBS Investment Bank