Strong Eurozone PMIs
There were few developments on Greece, following the conclusion of last night’s monthly finance minister meeting. Finance Minister Venizelos said he expects to conclude a PSI deal in the next few days and has a green light from the Eurogroup to do so. However that’s not what Juncker said overnight – it seems the current IIF proposals are off the table and Juncker has told them to go back and agree a lower coupon with Greece than the one originally agreed. Although this is a setback, the news itself is not a major surprise given the Financial Times had already run the story on Friday night citing unnamed sources. There is no suggestion at this stage that the debt swap talks are about to collapse although, as a minimum, several days of tough bargaining lie ahead so headline risk will remain elevated. Dow Jones has already reported that Greece aims to make a formal offer on the bond swap by Feb. 13, and with expectations of a positive outcome already so high, any suggestion of irreconcilable differences between both camps could challenge the euro’s recent recovery. The euro had a choppy session, gaining some support on strong flash PMIs for January before drifting lower to trade largely flat on the day. EURUSD traded in a range 1.3063- 1.2988, USDJPY 77.39-76.96. Later on, attention will likely shift towards the FOMC decision due on Wednesday given investor interest in the new rate forecasts that are due to be released for the first time. Fed Chair Bernanke’s post-meeting press conference could also provide a surprise or two and we expect journalists to quiz him extensively on the possibility of further QE, perhaps even in combination with inflation targeting. We continue to view this rebound in risk appetite as a temporary respite in the middle of what is likely to be a prolonged Eurozone sovereign debt crisis.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank