Greece Election Stalemate
The euro sold off from the Asia open after Greece’s weekend election produced a parliament which is even less supportive of the EU/IMF bailout agreement than opinion polls had predicted. At the time of writing over 98% of votes have been counted and it is clear that the two pro-agreement parties New Democracy and PASOK no longer hold enough seats to command a majority. Fringe political parties polled extremely well, and SYRIZA (The Coalition of the Radical Left) took second place. New Democracy Leader Samaras now has three days to cobble together a coalition before the right to do so is passed to SYRIZA. In the US, though the 115k April US payrolls print came in well below the 160k consensus, the upward revision to the March figure (154k vs 120k) provided enough of an offset to dull the initial market reaction. Private payrolls came in at 130k after an upwardly-revised 166k result for March. Nonetheless, this latest read on the US employment situation provides more ammunition for the doves than the hawks. The dip in the unemployment rate to 8.1% should not obscure the drop in the labour force participation rate to 63.6%, the lowest since December 1981. Moreover, the flat readings for average hourly earnings and the workweek will only magnify fears that growth momentum will slow ahead, keeping the QE door open and the downward pressure on the dollar. Near-term USDJPY risks certainly appear skewed towards the downside, with Japanese institutions unlikely to be in any hurry to buy post-Golden Week amid the high degree of uncertainty in the global outlook – particularly in the absence of a stronger FX intervention threat. Yen bulls should have more room to run on such crosses as AUDJPY, with the Australian dollar facing a number of headwinds in the coming week, namely the prospect of (i) a budget that will tighten fiscal policy further to reach a 2012-13 surplus, thus inviting further RBA rate cuts and (ii) a moderation in the Chinese lending data, with consensus pegging RMB780 bn for April after the RMB1.0 trn result in March. Note that our Australia economics team expects the RBA to serve up another 50bp of rate cuts to 3.25% by August, and does not categorically rule out the risk of a sub-3% profile.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank