Markets Subdued As Focus Moves Towards Greece

The week has begun fairly quietly, with little economic data to be released this week. However, stocks in the US dipped on concerns over the economic crisis in Europe. Yesterday, German leaders met with their Greek counterparts, later this week they will try and agree to new reforms. The new austerity measures to be laid out are to be discussed as Greece tries to negotiate a deal of around EUR 11.5 billion. While this deal is vastly regarded to go through, there are still concerns that the austerity measures to be implemented may need to increase, which may provide some downside risk to the currency. However, the euro has gained slightly as sentiment remains positive towards these measures and we can expect further strength in the euro if the deal does go through. Elsewhere, rumours that the Bundesbank would keenly buy Spanish bonds whose yield levels have drastically dropped by over a percent from the highs to 6.28% were quashed as they clarified their position that they have no such plans. This left Spain to try and get funding from the EFSF for their distressed banks. The evaluation of the amount that they would need will also be determined early next month.

The US dollar is trading fairly steadily on a brighter economic outlook as we await the Fed minutes on Thursday to give it some sort of direction. Risk appetite has remained high as markets anticipate further developments in the resolution of the European debt crisis although gains remain limited, as the leaders may face disappointment over the agreement.

Sterling has remained relatively range-bound between 1.5650 and 1.5750 with markets keenly awaiting the outcome of the Eurozone meeting. Also, there seems to be some optimism after it was revealed that GDP figures are to be revised by 0.2-0.3% for the next reading. However, with most of Europe closed and fairly thin trading it may not provide any drastic volatility in the currency till next month. There is some data out of the UK this morning in the form of net borrowing figures from the UK’s public sector, as focus moves over to Greece.

Report by Amir Khan