In what should have happened some time ago, the EU finally agreed to a formal bailout plan of Greece and set actual parameters that would be followed if need be. The EU has agreed to provide Greece with as much as 45 billion Euros in bilateral loans at 5%, with up to an additional 15 billion Euro coming from the IMF. This is interest rate is much lower than Greece can get on the open market.
I think part of the reason there was so much uncertainty over this was that Germany wants to see the Euro lower to help encourage their exports. While no one wants to have to bailout anyone, Germany has thrived because of the EU so it is only “right” that they help the weaker members. At the end of the day, if Greece can institute austerity measures, then they may not even need to access this loan facility.
Home loans in Australia were down, showing signs that the increasing interest rate down under is helping to slow down housing growth as well as scaling back their first-time homebuyer incentive program.
Today marks the start of earnings season in the stock market, so potential gains or losses may affect demand for commodities and general risk assumptions.
In the forex market:
Aussie (AUD): The Aussie is lower on the home loans figures that came out despite the general appetite for risk as a result of the Greece deal. Business confidence figures are due out tomorrow, followed by consumer confidence figures on Wednesday. It’s a light week for news out of Australia, so expect the Aussie to trade on commodity prices and risk themes this week.
Loonie (CAD): The Loonie is lower this morning as oil as slid below $85 on reduced demand. In addition, housing starts in Canada were lower than expected prompting some selling. The business outlook futures sales figures are due out later today so that could be a catalyst for a Loonie reversal today.
Kiwi (NZD): The Kiwi is taking clues from both the Aussie and Loonie this morning as it is giving back gains from the pop it received from yesterday’s news on Greece. Retail sales figures are due out tomorrow, followed by a manufacturing index on Wednesday which should act as a gauge for the NZ economy.
Euro (EUR): The Euro is higher from last Friday’s close though giving back some of its gains vs. USD and Yen. As the long awaited bailout specifics were released, the market breathed a sigh of relief as there is now clarity over exactly what is going to happen should Greece require additional funding. The Euro is just under 1.36 vs. USD this morning. Tomorrow brings CPI figures from Germany and France, however don’t expect those figures to be market-moving unless they show that inflation is too high which is highly unlikely at this point.
Pound (GBP): The Pound has been on a nice run higher from its March lows as this week is light on news out of the UK. Next week the BOE will release its meeting minutes which should confirm their dovish outlook for rates. There is still concern about economic recovery in the UK, and the May elections concerns may heat up as it gets closer to the vote.
Dollar (USD): The Dollar is showing some strength this morning, after losing ground on the overnight session due to the news out of Greece. Wednesday is the big news day as advance retail sales and CPI are due out in addition to Fed Chairman Bernanke speaking to the Joint Economic Committee. In addition, the start of earnings season begins today so corporate growth figures could cause volatility in the equity markets. In addition, the nuclear summit taking place this week and the meeting between President Obama and the Chinese President Hu Jintao may increase speculation that China is ready to un-peg the Yuan.
Yen (JPY): Minutes from the BOJ policy meeting show that there was some dissention among policy-makers regarding the lending expansion program undertaken to help combat deflation. Improving economic conditions may cause re-evaluation of the policy in light of the well-known political in fighting between government and BOJ officials. The Yen is mixed this morning.
So today is sort of a whacky morning in that signs that the commodity currency economies may be slowing in addition to the news of the Greek bailout have caused “conflicting” stances.
While one might expect that the Greek news would be re-assuring for the market and induce risk-taking, the actual figures deem otherwise. And that is why it is so important to keep a handle on what is going on around the world.
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