SCOREBOARD: Greek progress

Markets were quiet as Greek politicians agreed to key budget cuts, although crude saw some gains.

Greek politicians finally managed to come to an agreement on reform measures, required if they want to receive the €130 billion rescue that the Troika are offering them. As far as I can tell though, details haven’t been released yet. The Greek finance minister also stated that a deal had been reached with private bond holders.

The risk bid was modest, fair to say, and I suspect this reflects the European decision to defer ratifying the €130 billion package. They want to see the legislation enacted before handing over the cash, so we’ll see.

Euro bounced around a big figure range but is only modestly higher from 1630 (at 1.3291). Similarly, the Australian dollar is down about 20 pips to 1.0791 on a 40-pip range while sterling is little changed at 1.5824 (70 pips range). While we’re on sterling, the BoE pumped in another £50 billion as expected, taking the bond target to £325 billion or 25 per cent of gilts outstanding. As they did this, data showed that manufacturing production bounced 1 per cent in December, which was much stronger than expected, and follows a 0.1 per cent fall in November.

European equities were all higher then, with the Dax up 0.6 per cent, the CaC up 0.4 per cent and the FTSE up 0.3 per cent. Across the Atlantic, US equities appear to be underperforming a bit which is surprising given the dataflow. New jobless claims fell a further 15k to 358k while wholesale sales rose 1.3 per cent in December and are almost 12 per cent higher annually, which is quite strong. Inventories for their part were up 1 per cent, both of which suggest some upside in the second release of US Q4 GDP. Yet as I write, the S&P is only up 0.2 per cent, having been down 0.4 per cent just after the open. Sure, it’s bounced from there but still. Energy and tech are offering a good measure of support to the index as I write, crude prices pushing up over 1 per cent on the stronger data and news on Greece. So WTI sits at $99.83 and Brent is at $118.6. Otherwise we’ve seen modest gains in most other sectors, although basic materials and telcos saw decent falls. Elsewhere, the Dow is up 18 points to 12902, the Nasdaq is 0.4 per cent higher to 2928 and the SPI is 0.2 per cent higher (4262).

In the debt space, the US treasury curve steepened a touch. So we saw yields on the 10-year rise about 3bp (2.04 per cent) from 1630 while the 2-year was up just over a basis point (0.265%). The 5-year yield was just under 4bp higher to 0.85 per cent. Aussie futures then eased off another 4-5 ticks with 3s at 96.35 and 10s at 96.84.

Not much else to it though – gold was off $6 from 1630 to $1729, silver was up smalls and copper rose 1.7 per cent. Other than that the ECB kept rates unchanged as expected, while the European bank authority suggests that European banks will hold 26 per cent more capital than required this year and that consequently no stress tests are required for the year.

Data kicks off today with NZ credit card spending at 0845 AEDT. The main event for the Aussie market, however, will be the RBA’s Statement on Monetary Policy (1130 AEDT). I’m not really looking for any material changes to their growth or inflation forecasts but it’ll be a good read nevertheless. Following the RBA’s decision on Tuesday there has been a decent repricing of rate cut expectations. Prior to that meeting the market was betting on a cash rate of 3.25 per cent by year-end which is now 3.75 per cent. Well, it’s more the case that it’s expected to be at 3.75 per cent by August and then the RBA is expected to hold.

This afternoon we get a read on India’s industrial production figures and then tonight, we get UK producer prices, US trade numbers and Michigan Uni’s confidence numbers.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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