Euro Higher Despite Another Greek Impasse
Jeremy Cook | May 22, 2015 04:46AM ET
Markets tired of lack of Greek progress
Optimism around a deal between Greece and its creditors has sunk once again overnight after a meeting between Greek PM Tsipras, French President Hollande and German Chancellor Angela Merkel ended without any agreement between the two sides. Today sees an EU leaders’ meeting in Riga with the Greek situation once again top of the schedule.
Despite the Greek government’s constant assertions that a deal is just around the corner it is looking like they may have been kidding themselves as well as the markets. We can but hope for some positive noises from the non-Greek participants later in the day. For now, they are the only ones to believe.
Dollar vs Inflation
Despite the constant disappointment around the Greek situation, the euro is higher after some broad USD selling overnight. Most of this dollar negativity seems to have come from another run higher in oil prices this week. Crude oil is set to post its 10th consecutive week of gains as the pressures of over-supply seem to be lessening. A speech by John Williams, the Chair of the San Francisco Fed, that saw him talk up the Fed’s commitment to higher inflation is also being cited as a reason for dollar weakness.
Fed Chair Janet Yellen’s speech later on the US economy will come a few hours after the latest CPI measure from the US. Given movements in producer prices, energy prices and the strong dollar, we have to be looking for a poor number; possibly a negative number on the month and additional dollar losses in the aftermath
UK consumers keep spending
GBP has maintained its gains from yesterday’s retail sales report that showed a 1.2% gain in sales on the month and 4.7% increase in the past 12 months. Simply, the man in the street is finally starting to see wages increase in real terms and the stagnancy in inflation is allowing him to go out and shop. Clothes sales were the main driver, up 5.2% on the month, the highest since 2011 – a likely reaction to a week or so of good weather in April.
Fears had been that the average consumer – as they had done in some other developed economies – would save the gains in disposable income that they have been afforded from lower energy and food prices this year. This does not seem to be the case and I would point to the rapid and persistent improvement in the labour market as a pacifier in this instance. It may be a stereotype but Brits seem happiest when they are shopping.
The strength of this retail landscape can now effectively put to bed fears that Brits will let deflation delay purchases. Sterling hit fresh three month highs against the euro yesterday and could easily extend these gains as the time without a deal on Greece extends into June.
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Yen stronger as Bank of Japan outlook strengthens
Japanese yen is stronger overnight as the Bank of Japan hinted at increased optimism in the Japanese economy, causing traders to lessen their bets on another round of Japanese monetary policy stimulus. While that may be the case now, the lack of inflation within the world’s 3rd largest economy means that the Bank of Japan will likely push the button for increased bond buying by the end of the year.
The day today
The data calendar is stuffed to the gunnels today. German GDP has already been confirmed at 0.3% in Q1 and focus will now shift to the IFO reading of economic sentiment. Last week’s ZEW release showed a poor level of business sentiment in the German economy and the pair tend to move rather closely. US inflation is the other main mover (previewed above) whilst we also have speeches from Mario Draghi, Mark Carney and Janet Yellen.
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