Brinkmanship Continues
The euro extended its weakness during the Asia session overnight as investors continued to express concern over the failure of Eurozone authorities to secure an aid package for Greece before bond redemptions are due. In comments made after the Eurogroup conference call, Jean Claude Juncker merely said ‘decisions’ would be made at next week’s full meeting but it appears doubts remain over Greece’s ability to deliver. The stop-gap solution seems to be coming up with enough funds to repay creditors only while withholding other forms of aid. A bridging loan to last the next month is being planned, though essentially this is only buying time for a fuller discussion on the merits of a longerterm plan. The headlines were a wake-up call to a market that had grown complacent about the risks around the current negotiations. Nevertheless Juncker said that strong assurances had been received from Greece’s political leaders and implied that full agreement is only a few short steps away. He specifically mentioned the need for mechanisms to ensure stronger surveillance and to prioritise the repayment of debt owed to creditor nations. Nevertheless, he said that these outstanding issues would be addressed and declared himself ‘confident’ that the finance ministers will ‘take all the necessary decisions’ when they next meet in person on Monday. Greek Finance Minister Venizelos added that the bond swap details would be announced on Monday provided final agreement is reached on the terms of a second rescue plan. FOMC minutes from the January meeting revealed that ‘a few’ FOMC officials still cling to the belief that more asset purchases will be needed this year. We note however that mainstream thinking within the FOMC appears to have backed further away from this position, and would only consider additional easing if the US economic outlook darkens. Overnight Australian jobs figures were far better than expected and the unemployment rate dropped to 5.1%, though we expect Grece to remain the dominant driver. EURUSD traded 1.3007-1.3068 and USDJPY 78.36-78.53.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank