The meeting of European finance ministers dragged on well into the Asian session with a press briefing only announced close to mid-morning. The headline announcement revealed a deal had been struck with a €130 bln bailout package with Greece’s debt/GDP ratio to fall to 121% by 2020.
EURUSD gapped 50 points higher but still struggled to take out the overnight high of 1.3275 at the first attempt. But the resistance fell a short while later and we pushed up to just short of 1.33 versus the dollar.
It is worth noting that the quantum of the bailout appears lower than the revised estimated numbers Greece now requires – as the Greek economy implodes and revenues fail to meet forecasts.
Before the release of the official statement, an EU official was quoted on the wires as saying the private sector is expected to take a larger nominal loss of 53.5% (50% before) and in return will get 30-year bonds. This took some of the shine off the rally. Meanwhile, the ECB will also reportedly forgo its profits on Greek bond holdings as part of the package.
Aside from Greek headlines, Asian traders were focused on the release of the minutes of the last RBA meeting for additional nuggets on the reasons behind keeping rates unchanged. But the minutes were broadly in line with the post-meeting statement though there was a slightly less-dovish tone to the content. Noting that “if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy”, the RBA appears to be attaching a touch more conditionality to the next easing though weakening demand conditions could come from many quarters – Europe, a hard landing in China, commodity price collapse etc. The RBA noted, however, that China was still growing strongly and “the likelihood of an extremely bad outcome (in Europe) seemed to have diminished”. The next event to monitor will be RBA governor Stevens’ testimony before the House Economics Committee on Friday.
The only other data release to monitor was the release of the RBNZ’s 2-year inflation outlook survey for Q1 which eased back to 2.5% from 2.8% in Q4. With inflation expectations easing (lowest in over 2 years) as the GST hike impact rolled off, the data was seen as given the RBNZ more time and space to keep rates at the emergency low level for longer. NZD slid on the back of the data but found support once the EUR rallied.
The early up-move in the EUR yesterday came following a more positive tone to the Bundesbank’s monthly report, which was a tad more upbeat about German economic prospects, saying they had “improved perceptibly”. But heightened nerves as the EU meeting dragged on pulled the single currency back from its highs. There were no other economic releases out of Europe and the US.
Data Highlights
NZ Q1 RBNZ 2-Year Inflation Expectation out at 2.5% vs. 2.8% prior
Upcoming Economic Calendar Highlights (All Times GMT)
JP All Industry Activity Index (0430)
Swiss Trade Data (0700)
Swiss M3 Money Supply (0800)
UK Public Finances (0930)
CA Retail Sales (1330)
CA Wholesale Sales (1330)
US Chicago Fed Activity Index (1330)
EU Euro-zone Consumer Confidence (1500)
UK BOE’s Bean to speak (1930)
Andrew Robinson,
SAXO BANK