Eurogroup Reaction Sought
Risk was steady overnight as markets did not seemed too concerned over Greece’s financial situation and the general lack of agreement over the next Troika disbursement. Nevertheless we do expect to hear progress on this front over the coming days – after all, a EUR 5bn Greek t-bill is due to mature on Friday which should help concentrate minds and inject a dose of urgency. Greece aims to sell over EUR3 bn in T-bills on Tuesday to help raise most of the required cash. Many Eurogroup leaders, notably German Finance Minister Schäuble, have repeatedly stated that the Eurogoup and all other parties involved have been well aware of Greece’s financing calendar, but even so he did not expect any swift payment until details were finalized. Over the weekend, China’s trade balance for October beat consensus estimates, boosted by accelerating export growth. We would caution against buying AUDUSD on the back of this release however given the detail was far less encouraging. The value of iron ore imports fell 21% m/m and has dropped back to levels unseen since Feb 2010. This keeps us long-term bearish on the Australian dollar but we are patient given time is on our side − our downside AUDUSD option trade recommendation still has four months to run to expiry. Elsewhere, Moody’s announced overnight that the Aaa rating on the US would be maintained even in the event of the economy going over the fiscal cliff. This week’s release of the FOMC minutes may provide the first glimpse of what the Fed’s take on the issue is, and whether the associated uncertainty would all but confirm the need to add to its balance sheet expansion via asset purchases once Operation Twist is scheduled to expire by the end of the year. Even though our call for a stronger dollar remains predicated on the view that US growth will outperform, with the exception of USDJPY price action, the greenback will still likely do well in an environment of rising volatility ahead of the fiscal cliff, in a manner not dissimilar to the debt ceiling negotiations last year. So far, both sides of the aisle in Washington have been talking about compromise but the market will likely expect the timetable to be challenged to the fullest extent. Overnight EURUSD traded in a range of 1.2698-1.2739 and USDJPY 79.41-79.56. Ahead today, the Eurogroup meeting is scheduled for this afternoon and the market will be on the lookout for more Greece-related commentary.
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UBS Investment Bank