Eurogroup Begins
With central bankers out of the limelight after an active week, attention will be back on the Eurozone political establishment and their efforts to consolidate agreements from the recent summit. Eurogroup talks begin today but with the ESM’s activation delayed pending full ratification, it may prove difficult to commit to more on an aggregate level. As such, the details of the talks may shift to demands of individual countries and their attempts to refine individual bailout requests, such as Greece’s attempts to renegotiate their MOU and Cyprus’ aid request. The budget positions of individual countries will also be under scrutiny, though we note that this is unlikely to be a phenomenon restricted to the Eurozone amid the recent deterioration in global growth expectations. As such, markets are likely factoring greater difficulty in achieving this year’s fiscal targets, but we question the margin impact of these changes on the euro or spreads given these factors have been well-flagged in advance. In contrast, it is in Emerging Markets and the US where greater revisions may have a greater impact. Friday’s payrolls data were soft, but probably still not soft enough to trigger a new round of stimulus, and the Fed has little reason to add to their current policy mix after the recent extension to twist. Nonetheless, individual Fed members are making their views known again: Boston Fed President Rosengren noted the latest jobs report is ‘not a positive sign’, and that it would be possible to see additional balance sheet expansion depending on forthcoming data. Rosengren becomes an FOMC voter in January, at the very moment the US is scheduled to experience its ‘fiscal cliff’. Chicago Fed President Evans (also a non-voter this year) recommended that the Fed should take bolder easing steps – preferably by buying MBS. This policy prescription is very much in line with his previous remarks and FX markets did not react. The BoJ is the only key G10 central bank decision this week. While our Japan economics team still expects the BoJ to expand its Asset Purchase Programme, we believe a JPY5 trn ‘top up’ would have little lasting impact barring an unexpected movie in US yields. Ahead today, consumer credit figures are due at 15:00 ET. Overnight EURUSD traded 1.2251-1.2336 and USDJPY 79.43-79.77.
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