I often joke about the crisis in the Greece and their theatrical history but yesterday really took the cake. The drama surrounding the Greek government confidence vote and the TV coverage was almost too much to bear.
The market was pretty certain that the government would be re-affirmed, yet sold-off after the announcement. Strange action indeed. So it is tough to determine where we are in the “play” that is the Greek crisis, but this recent climax may mean that we are just more than half-way there.
Overnight in the UK, the release of the BOE rate policy meeting minutes essentially confirmed what we knew yesterday, that the BOE may be inclined to increase asset purchases (quantitative easing) in order to combat the “soft patch” the economy is going through despite the 4.5% inflation.
Later this afternoon, the FOMC meeting will take place with Bernanke’s speech following. While there is absolutely no chance that policy will be changed, he make back away from the stance that fiscal policy needs to be reigned in right away. So while he realizes the need for fiscal responsibility, he may be concerned about the timing of it.
So the markets are seeing a bit of risk aversion to start the day, though I’m not sure this will last after the last two days of risk appetite and the relief of the Greek crisis.
In the forex market:
Aussie (AUD): The Aussie is mostly lower on risk themes though it has been climbing back this morning.
Kiwi (NZD): The Kiwi is higher across the board after trade balance figures came in better than expected led by exports which shows that the economy may be improving. (Click chart to enlarge)
Loonie (CAD): The Loonie is also somewhat lower on risk themes even after yesterday’s leading indicators figure came in much better than expected. While retail sales were slightly worse than expected, the Loonie will trade with risk sentiment today.
Euro (EUR): Are you sick of hearing about Greece yet? Me too. But for now that was one hurdle cleared in what will likely be many more as the Euro debt crisis continues. Industrial production figures came in worse than expected, but that’s a minor issue in the grand scheme of things. (Click chart to enlarge)
Pound (GBP): The Pound is lower across the board after the BOE flipped to a more dovish stance which may include increased asset purchases if the economy doesn’t start to turn around. Stagflation is a very real concern in the UK.
Swissie (CHF): The Swissie is mixed as risk aversion is counterbalanced by the ZEW expectations survey which came in way worse than expected, showing a decline of 24.3. Last month’s reading was down 11.5, by comparison.
Dollar (USD): All eyes are on the Fed today and the FOMC meeting at 2:15EST where no policy change is expected. The low rates for an “extended period” language is also expected, as the Fed fights to balance out poor fiscal policy.
Yen (JPY): The Yen is stronger across the board on risk themes despite the fact that Asian markets were higher overnight.
Let’s face it, its not pretty out there. Various governments around the globe are facing different but similar situations. Each response is different based on the Central bank’s mandate and the type of cooperation they get from government on fiscal policy.
Unfortunately here in the US, fiscal policy is a mess, we currently have no budget, and we are facing problems if the debt ceiling isn’t raised. Politicians are essentially playing a game of chicken to see who will flinch first. One side wants to reduce spending to the point where it may be a detriment to the economy, and the other wants to do nothing.
This uncertainty adds to the risk in the marketplace and prevents economies from healing. Temporary measures provide temporary relief and its time we came to grips with the fact that things have to change, even if they are unpopular in the short-term.
However, with election season just around the corner, don’t bet on it!
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