EUR Remains Heavy
The failure of China’s weekend RRR cut to improve market sentiment and the ongoing political uncertainty in Greece conspired to keep the euro on the back foot, with EURGBP looking particularly heavy. AUDUSD remains mired below parity, while the yen continues to sport a firm profile, as the negative equity market tone in Asia spread to the major European and US indices. The RRR cut has done little to alleviate ‘hard landing’ concerns in China, as bolder policy easing – via more fiscal spending and credit support – will likely be needed to have any sustained impact on the market in the face of all the event risk in Europe. Today’s meeting between the Greek President and key party leaders produced no breakthroughs. The talks will continue on Tuesday, with SYRIZA confirming its attendance – sustaining slim hopes that a coalition can still be forged, an outcome that might offer temporary relief for the euro on such signs of ‘progress’. Yet, there does not appear to be a lot of scope for policy compromises going forward, with the SYRIZA already rejecting the President’s proposal for a government of technocrats. Furthermore, SYRIZA’s staunch opposition to the current bailout agreement suggests that even in the unlikely event that a June election can be avoided, there will be a showdown with the EU/IMF. More immediately, the focus will be on whether the Greek government will fully repay the EUR0.4 bn foreignlaw bond that matures on Tuesday, though the sense is that Greece will aim to avoid a technical default at this stage.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank