Buy the rumor sell the fact, there was none of that. There was no euphoria when the austerity deal was finally struck on the Greek side. Global equities did happen to receive a small bid, fixed income yield remained rather flat, but that was it, no ticker tape parade. One certainly gets the feeling that no one believes in it, and that is the reason why the European finance ministers have dismissed the +EUR3.3b Greek budget cuts as incomplete. They are demanding another +EUR325m of cuts and parliamentary approval of the reform package plus pledges from political leaders that they will maintain their commitment after April’s Greek election. Apparently if these conditions are met, then finance ministers would reconvene next week and sign that second loan agreement that should unlock the financing that Greece needs to avert a potentially damaging default in March. Before that, it seems that the market has a whole weekend of event risk to price in again!
Demanding fresh proof from Greece’s political leaders that they are ready to deliver on Ã¢â‚¬Å“past and future pledgesÃ¢â‚¬Â has the EUR backing away from this weeks highs. A majority of investors can breath a temporary sigh of relief. Most of the market participants have similar positions on, with the primary one being short EURÃ¢â‚¬â„¢s, short outright, short on the crosses and after this weeks move, most likely short and under water! This lemming trade has provided very little intraday volatility of late, especially at the top end of the range. Why? With cousins and parents all short EURÃ¢â‚¬â„¢s, many have been afraid to Ã¢â‚¬Ëœtip the apple cart.Ã¢â‚¬â„¢ Reversing EUR positions at just lofty heights tends to be a tad rich!
The market again has to focus on the Greek parliaments attempt to vote through the austerity measures this weekend. Heightened social tension on the back of the 48-hour national strike will also be of concern to market participants. Not been able to lend a EUR hand this morning was the disappointing French data release. The Industrial Production print has managed to depress some of this weeks in Ã¢â‚¬ËœdenialÃ¢â‚¬â„¢ positive sentiment. Output happened to fall -1.4% in December, more than the -0.8% consensus expected. This final print will do no favors for French Q1 GDP, analysts should now expect the possibility of a negative print.
Now that risk assets seem to be selling off on concerns of Greek talks roadblocks, the sharp contraction in Chinese imports in the O/N session is also weighing on sentiment. ChinaÃ¢â‚¬â„¢s trade numbers last month have been dragged back by seasonality. Exports contracted -0.5%, y/y while imports fell -15.3%. Being allowed to strip out seasonality, one can paint a different Ã¢â‚¬Å“positiveÃ¢â‚¬Â picture. Risk appetite may also be exposed to this mornings University of Michigan’s consumer confidence survey. The market is looking for no change in the 75 print, however, any weakness and negative risk trading strategies will dominate market play heading into the weekend.
BoE and ECB Showtime