Euro Relief
The absence of any nasty headlines out of Europe offered some relief for the euro, amid hopes that PASOK leader Venizelos will be able to forge a coalition with the New Democracy and Democratic Left – a set-up that would command a majority of 168 of 300 seats. Though pro-euro, the Democratic Left is opposed to the bailout agreement, still portending some hard bargaining ahead and a showdown with the EU/IMF. Moreover, an unnamed PASOK official’s comment that SYRIZA must be involved in any ‘national unity’ government suggests this is not a done deal. The fact that SYRIZA is still in the mix probably reflects its growing public popularity. Indeed, according to the latest public opinion poll (by MARC SA), SYRIZA is leading the pack (24%) ahead of New Democracy (17%), PASOK (11%), the Independent Greeks (9%), KKE (6%), and the Democratic Left (4%). The political confusion explains why the EFSF opted to approve the EUR5.2bn payment for Greece in two installments instead of one, as originally planned. The initial EUR4.2bn will allow Greece to get through this month at least, in a move seen to provide only what is strictly needed until the political situation stabilises and there are enough reassurances that a feasible solution can be reached. However, at the very least, markets appear to be viewing this as a sign of ‘progress’, allowing the euro to hold its own against the dollar and cling on to gains versus the Nordic currencies in the wake of the soft CPI prints in Sweden and Norway. Norges Bank left rates at 1.50% as expected, with the statement noting “weak growth prospects in Europe and a strong krone are holding down inflation at a low level and restraining growth among Norwegian companies exposed to international competition”. Elsewhere, the BoE left both the policy rate and asset purchase programme unchanged, and while sterling initially rallied on the announcement, there was predictably little follow-through. USDJPY is also slightly firmer, with the US initial claims print (down to 367k from 368k), US trade data (implying very little revision to Q1 GDP growth) and Fed Chair Bernanke (who basically confined his comments to banking sector issues) offering nothing new for the doves. Japan’s Vice Finance Minister Igarashi served notice that “generally speaking, we could intervene if speculative and excessive moves occurred”, though the tenor of the comments did not hint of any immediate desire to take action on USDJPY yet.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank