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Do we have an agreement in Greece? Noises yesterday suggested so although no clear announcement has been made. The rumours did cause a slight rally in risky assets yesterday but with all the macroeconomic data flying round from the UK, Bank of England and Mario Draghi, yesterday’s session was a very choppy one. The story was broken by the FT Athens correspondent that a deal between Greek politicians had been reached, however, it has not signed, ratified or confirmed in any way, shape or form. There are numerous hoops for this agreement to jump through before we can say “Deal Done”.

Firstly, the deal has to be voted on by the Greek parliament this Sunday. Some commentators have brushed this off as a mere formality but, following further labour strikes from Greece’s two largest unions and the resignation of the country’s labour minister, the debate within the chamber will not be tepid to say the least. Further protests in Syntagma square can also be expected.

Secondly, and like a naughty schoolchild, the IMF is now requiring Greece to provide written proof that the EUR300m-odd hole in the new austerity package is tied up. Talks originally broke down over whether this should come from public sector pension pots; defence spending has been mooted as a place where these cost savings could be found.

Lastly, the deal is all predicated that these reforms are enacted. There is a Greek general election in April, bringing an end to the 6 month technocratic rule of Lucas Papademos. Should he leave and the new government renege on the deal, we are back to square one. The troika will put up there side of the bargain, it is up to the new leaders of Greece to keep up theirs.

As you can see, the entire situation is a mess and I am still unable to name a person, outside of the European political class, who believe this will work in the long term. Greece’s future remains outside of the euro in my opinion.

Matters closer to home were far simpler yesterday. The Bank of England matched the analyst expectation with a £50bn injection of further QE yesterday and warned that they expect a “significant shortfall” in the UK economy to persist. Those of you who took part in our webinar yesterday will know that we now expect a further jump in May of between £50-75bn. That being said, sterling rallied yesterday and gilt yields fell although the moves were entirely within the pre-determined ranges. Sterling had earlier picked up on news that our trade gap, the difference between our imports and exports had narrowed to the lowest level since 2003, while manufacturing output had risen by 1% in December against an estimate of 0.2%. The imposition of further QE has moved the interest rate expectation curve so that the market now doesn’t expect a rate hike in the UK until 2016!

Draghi’s press conference held little surprise although there were some language changes that may have caused some to rethink their expectations of a rate cut next month from the ECB. The Bank reiterated that “downside risks” to the Eurozone remained although that these were no longer “significant”. They also stated that inflation was “broadly balanced” and that there had been no discussion of a rate cut at this month’s meeting. The curve for rate cuts has shifted a tad but most people expect 50bps cut in March still.

Overnight Chinese import data has disappointed, making sure that European equities start the day in the red. Industrial production figures from France have also disappointed this morning following horrific figures from Greece earlier in the week. Today smells like a day during which risk will fall, so those looking to buy GBPUSD may want to get short-term needs filled quickly.

Eyes today will remain on Europe but the data calendar gives us UK PPI at 09.30, US trade balance at 13.30 and consumer confidence at 14.55.

Latest exchange rates at time of writing

The Greek saga continued overnight with an agreement on austerity once again unable to be found. The talks between Lucas Papademos, the technocratic PM, and the leaders of the three main political parties broke down over EUR300m worth of cuts to public sector worker pensions. According to the press, the EU/ECB/IMF troika have given the politicians 15 days to find the money somewhere else with talks between European Finance Ministers due in Brussels today.

And yet the euro keeps on going! EURUSD traded above the 1.33 level for the first time in 2 months while GBPEUR has printed within touching distance of the 1.18s overnight (low was 1.1903). It seems that any dip in the euro will be well supported, for now at least.

Finally we get some macro data today and a fair chunk of it comes from the UK. The Bank of England’s 2 day meeting began yesterday and the market is expecting another spurt of quantitative easing. The amount that analysts are expecting has dipped from £75bn to £50bn in the past few days as a result of the good PMI numbers from the UK economy in January. All these surveys are now showing growth and the services number was the highest since March 2010 but this has not altered our belief that the MPC will vote for £75bn.

This second round of quantitative easing has never really been about the UK in our opinion. It has been about insulating the UK economy from the fallout from the Eurozone and keeping the pound weak to help our beleaguered manufacturing base. Now, while a Lehman Brothers type event has been averted courtesy of the ECB’s new lending operation, recession and diminished confidence cannot be spirited away and herein lies the problem. The European recession will have a less deep but a more protracted effect on the UK economy and that’s why the increased amount should be voted for. Anything less, like £50bn would not have too much impact whereas £100bn would see the pace of the Bank’s purchases increases markedly over the 3 month period. The announcement is due at noon. No change in interest rates is expected.

We also receive UK manufacturing and industrial production for December at 09.30 with both measures expected to bounce back into positive territory, confirming the slight recovery in industry the UK is seeing.

The ECB meeting is also due today and while the meeting will garner less fanfare (on account of policy  being likely to remain unchanged) but the press conference will always throw up a few surprises. The questions will focus on the ECB’s position on its holdings of Greek debt and how they may be able to help in the restructuring. Some are saying they should take the loss, some are proposing a scheme that would see the EFSF buy the Greek debt from the ECB so that Greece could then buy back the debt with money borrowed from the EFSF. Charles Ponzi – you’ve never been so relevant. Mario Draghi speaks at 13.30.

For instant reaction to Thursday’s Bank of England and European Central Bank announcements you can join our webinar on Thursday at 2pm. It is free and we will be looking at what sterling’s prospects are for further gains in the coming months. You can register here

Finally we also receive the NIESR’s latest estimate for GDP for the UK in the month of January at 15.00. December’s number was 0.1% and we will be looking for something around the 0.2-0.3% level.

Have a good day

Latest exchange rates at time of writing

Another deadline missed and still no agreement on the Greek debt situation. A meeting planned between interim PM Papademos and other political leaders failed to materialise and was rescheduled for later today. This is now becoming a parody of itself and were it not for the March 20^th line in the sand (a EUR14.4bn bond redemption) this could be dragging on past Christmas.

Despite the delays, a comment by a Greek government official that the government was drafting an agreement on the bailout deal for approval later in the day moved EURUSD to an 8 week high and saw cable retrace back into the 1.59s. As we said yesterday, the pricing in/out of a default or deal is very liquid at the moment and the “path of most pain” is EURUSD higher from here to possibly 1.35. This has made sure that although there has been no bad news from the UK in the past 24hrs (BRC retail figures apart, which were largely brushed off) that GBPEUR finds itself below the 1.20 level.

As it stands at the moment in Greece it looks like members of the ECB/EU/IMF troika are looking to meet the individual party leaders separately before they come together later in the day. Whether they are using “enhanced negotiation” techniques cannot be confirmed and the similarities with prisoner’s dilemma is startling! Risk does point to markets moving higher today and a deal from Athens, or some positive move at least, could be the catalyst.

The Swiss National Bank reiterated its desire and stalwartness to keep the EURCHF floor imposed at 1.20 yesterday with interim Chairman Jordan stating that the bank will not tolerate a break of that level. EURCHF has rallied from the lows that it’s seen in the past few sessions as investors try to test the Bank however they are having none of it. There were rumours that the speech would coincide with a move of the floor to 1.22 but that turned out to be false. We do expect the floor to rise over the year, however, as the pressure on the Swiss economy grows.

The plan for today is very much the same plan as we have had for the past couple of days: watch out for Greece. The Dutch PM went a little off-piste yesterday by admitting that the Eurozone would survive without Greece and that the possibility had been discussed. Juan Manuel Barroso attempted to row these back by saying that all of Europe “wanted Greece in the euro”. One sounds true, the other false; I’ll let you guess which one.

The structured data for the week starts tomorrow with the Bank of England and European Central Bank meetings. For instant reaction to Thursday’s Bank of England and European Central Bank announcements you can join our webinar on Thursday at 2pm. It is free and we will be looking at what sterling’s prospects are for further gains in the coming months. You can register here

A German bond auction is the only real news in the debt markets today with a 5yr auction from Germany at 10.15 GMT.

Latest exchange rates at time of writing

Another deadline passed in Greece yesterday without an agreement and the market must once again take another trip on the interminable merry-go-round of broken promises, incompetent politicians and self-serving rumours. The Greek political class are too scared of losing their jobs to vote through the further austerity measures and the EU/ECB/IMF troika won’t play ball until further efficiencies are found, intransigence thy name is Greece.

A meeting between Greek politicians is due today and following some harsh words from both Merkel and Sarkozy as to the lack of progress, the technocratic PM Lucas Papademos may have to crack some heads together to get an agreement. Strike action is planned in Greece today as well; expect Syntagma Square to focus in news broadcasts and trouble to flare.

The market reaction has been limited with the euro gaining against both GBP and USD yesterday. There are 2 possible reasons for this: firstly that all the bad news about a default is priced in and still the euro remains strong or none of the news is priced in and that’s why the euro remains strong. Either way it seems that once a plan is announced it will be to the single currency’s benefit. The fact that another leg of the ECB’s LTRO liquidity plan is due to be launched at the end of the month will also keep the euro supported from a risk point of view. This all fits in with our belief that the euro is not due some massive sell-off anytime soon.

Risky assets have sold off in Asia overnight as the Reserve Bank of Australia decided to keep rates at 4.25% when a vast sway of the market expected a 25bps cut. Aussie dollar has flown as a result and touched a 27yr high against GBP in the immediate aftermath of the decision. Obviously the central bank is happier than most about the progression of the Australian economy, possibly as a result of the strong GDP numbers from China earlier in the year, but the decision has come in for criticism from retailers and exporters already. The market may want to see AUD move to a post-float high versus USD (1.1081) soon, especially if the global risk profile increases to support such a shift.

With a lack of tier 1 data today it will be Greece that keeps investors and traders busy over the course of the European session. Much like yesterday we expect the main pairs (GBPUSD, GBPEUR, EURUSD and USDJPY) to remain trading in their pre-determined ranges with possible euro strength should a positive announcement be forthcoming. We also have bond auctions from the Netherlands and UK at 09.00 and 10.00 GMT respectively.

The only data of note will be this morning’s Industrial Production numbers from Germany. They are expected to remain flat versus the previous month following an unexpected decline in December.

Latest exchange rates at time of writing

Meetings between Greek politicians continued over the weekend but no signs of an agreement have been forthcoming. The IMF/EU/ECB troika has asked Greece to come up with further austerity measures by 10am GMT this morning so as to receive the new EUR130bn bailout package that should see the Greeks not default on March 20^th. Or at least, not default in a disorderly fashion. The agreement on how much of a haircut the private sector will receive has been pushed away, it seems, as the ECB is not willing to take losses on its holdings and the investors, and a fair few Greeks, want them to.

The euro has slipped somewhat in overnight Asian trade although market conditions have been very thin. GBPEUR hit a high of 1.2084 before falling back to 1.2058 while EURUSD got as low as 1.3053 and now finds itself 30pips higher.

Asian equity markets have crept higher overnight however and that slight “risk-on” mentality has made sure that the euro’s losses have not been so bad. Most of the encouragement came from Friday’s superb jobs numbers out of the US that saw 243,000 jobs added in the month of January. The unemployment rate also fell to 8.3%, the lowest in 3 years, and now lower than that of the UK. This will add fuel to the fire that stimulus and not austerity is the way to go.

The US jobs figures were not the only upside data surprise of the day. UK services PMI shot higher to 56.0, against an estimated reading of 53.3. This was definitely unexpected good news (nobody predicted it would get that high) and will eliminate most fears that a double-dip recession is on the cards.

I do not believe that this changes the MPC’s view on further quantitative easing, however, and expect the Bank to add £75bn on Thursday. When the latest pump of cash was injected last October the committee emphasised that it was more as a result of European headwinds than problems with the UK that caused the decision. Now, while a Lehman Brothers type event has been averted courtesy of the ECB’s new lending operation, recession and diminished confidence cannot be spirited away and herein lies the problem. Recession will come to Europe and, as a result, pressure on the UK economy must be alleviated sooner rather than later.

For instant reaction to Thursday’s Bank of England and European Central Bank announcements you can join our webinar on Thursday at 2pm. It is free and we will be looking at what sterling’s prospects are for further gains in the coming months. You can register here

Greece’s travails will be the focus for markets today with unions planning a 24hr strike tomorrow in protest of pay and pensions reform. That being said we anticipate that GBPEUR and GBPUSD will remain range-bound today.

P.S. Save for some dodgy reffing in the Ireland/Wales game we would have had 3 from 3 in our 6 nations predictions. It is a shame that may be the only England win of the campaign!

Latest exchange rates at time of writing

The “Story That Never Dies” may have a date with the executioner. It was announced yesterday that a meeting this upcoming Monday (Feb 6^th) is the new deadline for the parties to agree on all things Greek. Firstly, the size of the haircut that private investors must take on their holdings alongside what the ECB will do with its holdings. Secondly, the size of another bailout, which is rumoured to be around the EUR130bn mark and finally, further austerity measures from the Greek government. Surely, there must be a circle of hell somewhere down there where punishment is purely talking about the Greek situation and the false hope of these meetings.

Needless to say we are not expectant of a resolution on Monday; they can barely agree one matter in one day, let alone three in one day.

Announcements that we will also file on the shelf that reads “I’ll believe it when I see it” was chatter out of China yesterday. Chancellor Merkel is currently in China trying to solicit some money from her hosts to help with the Eurozone crisis and Premier Wen yesterday stated that China is considering increasing its contribution to the two European bailout funds. We haven’t had the “China as saviour” rumour  for a while so it was good of it to check in but we believe this is as far as it will go in the short term. Considering increasing your contribution and actually doing it are 2 very different things and we believe the Chinese do not consider the situation warrants an investment yet.

Euro rallied on both announcements but has not been able to break out of the ranges that it finds itself in. It’s unlikely to as well, pre-Non Farm Payrolls this afternoon.

The key figures this morning will be the services numbers from Europe and the UK. The US’s figure is this afternoon. We are below consensus in our estimate for UK services PMI (52.8 vs 53.3) as we believe the drop off in consumer spending between December and now has been slightly more than most expect. This should see cable come off its recent highs while GBPEUR may drift back towards the 1.20 figure. A positive beat could see GBPUSD push 1.59 although moves will be slight before the US jobs measure.

Payrolls are due at 13.30 and 140k is the expected figure with the unemployment rate forecast to remain at 8.5%. We think that we see a figure slightly below 140k and both GBPUSD and EURUSD will finish the day lower than where they are currently trading.

Have a great weekend

P.S. 6 Nations predictions are wins for France, England and Ireland.

Latest exchange rates at time of writing

What are you all worried about, huh? UK manufacturing PMI came out of the traps like a rocket yesterday, bouncing back into positive territory with the strongest number since May 2011. Orders also rose at the fastest pace since March but, as we like to caution, one swallow does not make a summer and the manufacturing sector is by no means secure at the moment.

The release did drive the pound onwards yesterday with gains against the dollar and the euro immediately after the announcement. Markets will be closely watching the services number on Friday for a closer look at the UK economy. Unfortunately we are quite bearish on Friday’s services number and expect the figure to show little to no growth and this could very easily stop the pound’s advance in its tracks.

The one thing I don’t think the newly found manufacturing strength has done is changed the market’s nor the MPC’s views on further quantitative easing for the UK economy. When the latest pump of cash was injected last October the committee emphasised that it was more as a result of European headwinds than problems with the UK that caused the decision. Now, while a Lehman Brothers type event has been averted courtesy of the ECB’s new lending operation, recession and diminished confidence cannot be spirited away and herein lies the problem. The European recession will have less deep but a more protracted effect on the UK economy and that’s why the money will come from the Bank of England.

In fact given the fall-off in the money supply numbers seen last week it could quite possibly be more than the £75bn the markets expect; a lot will depend on Friday’s services numbers and any sniffs they can get of the January retail sales number before it’s released in a fortnight.

In the EU we saw inflation remain low yesterday with CPI coming through at 2.7% on the year. I reckon it’s 50/50 whether we see an interest rate cut from the ECB this month. I would expect that they will wait until March and use the combination of a rate cut and a new injection of bank funding to obtain the most klout.

In an update to the story that never dies, we have heard nothing new as to whether the parties involved are any closer to striking a deal on Greek PSI. The market has given up caring to be honest and even comments from Fitch, who 3 months ago would have caused mass hysteria in bond markets, are now greeted with a cursory glance and a sigh. The prospect of a deal still remains as a euro-positive but the magnitude is diminishing as time goes by.

The one to watch today ahead of tomorrow’s jobs figures is Ben Bernanke’s testimony to Congress during which he is likely to be quizzed heavily on how the Federal Reserve aims to keep its Zero Interest Rate Policy (ZIRP) intact through until 2014. He testifies at 15.00 GMT. The most closely watched event out of Europe today will be the French bond auctions due at 10am.

Good luck

Latest exchange rates at time of writing

We told you it would be volatile! Month-end fixes pushed currencies around yesterday, technical levels were breached, with the euro the main loser with GBPEUR hitting a 2 week high in the afternoon session while EURUSD moved lower and back towards the 1.30 level. The moves fit nicely with our expectation that both GBPEUR and GBPUSD will remain range bound over the coming weeks, data surprises aside.

The Asian session has seen a further move lower for risk as traders seemed disappointed by the news that China’s latest manufacturing PMI number was higher than expected and above the 50.0 level that demarcates the line between expansion and contraction. While it reduces the belief that a “hard landing” in China is just around the corner, equities have tripped lower as traders have priced out the effect of further monetary easing by Chinese authorities in the short-term. It seems that domestic demand has picked up to offset the fall-off in demand from the Eurozone although with Chinese New Year part of this month’s survey a revision lower could be forthcoming.

Risk has also slid on a trio of rough data from the US yesterday. At the beginning of the year it seemed that US could do no wrong with good data coming from every survey. Yesterday, however, we saw weaker than expected numbers from the housing market with the influential Case-Shiller survey showing that 18 of the 20 largest metropolitan areas saw house prices fall in the year between Nov 2010 and Nov 2011. Only Detroit, which has seen a horrific crash, and Washington DC were the only areas to show price growth.

US Consumer Confidence was also lower contrasting with the Reuters survey last Friday. Job market pessimism seemed to be primary reason, but this was confined to the short term with future expectations improving. Price increases in oil and gas have not helped matters either and we will see whether this is a one-off or the beginning of a larger dip when the advance retail sales number is released in a fortnight.

So China has started us with a stronger manufacturing number, can Europe carry on the trend? Today is all about the PMIs from Europe and the UK and later on all eyes will be on the ISM from the US. Most of the preliminary 0.2% fall in UK Q4 GDP was as a result of a fall-off in output from the manufacturing sector although this was seen to improve as the quarter went on. Today’s manufacturing number will be the first indicator as to how 2012 has started. It would be fair to say that consumer spending will drop between December and January as the public pay down debt from an expensive Christmas. With a stable consumer sector (at best), we need manufacturing to come back to the party or, we are staring down the barrel of an, albeit very shallow, double-dip recession. The economist fraternity could not be more on the fence today with the estimate sitting exactly at 50.0, no growth but no falls. The number is due at 09.30. Italy’s arrives at 08.45, France’s at 08.50, Germany’s at 08.55 and the EU measure is at 09.00. The US reports at 15.00.

The Greek PSI negotiations continue to rattle on and offer an inherent euro-positive risk but news flow on this matter has been light and we suspect the chances of a deal in the next 24hrs to be slight. Headlines and tape-bombs from various EU politicians cannot be ruled out of course.

Good luck.

Latest exchange rates at time of writing

The meeting of EU members yesterday was successful in that the fiscal compact agreement proposed by Germany was passed. All countries apart from the UK and the Czech Republic signed up to the agreement to balance budgets and bring deficits lower although the actual detail on penalties and so called “exceptional circumstances” break clauses will work.

This is merely a sideshow to the real problem that is Greece, and that particular problem has not been moved forward an inch. One EU politician remarked yesterday that a resolution would be forthcoming “in the next days”. The fact that he left out a number would be funny if it wasn’t so symptomatic of the fact the a resolution is still a long way off.

This combined with a fairly lacklustre Italian debt auction saw the euro gradually weaken throughout the session moving back into the 1.30s in EURUSD and to the high 1.19s in GBPEUR. The Italian auction wasn’t disastrous, far from it, but in contrast to the stellar auctions that we have seen from Spain from example the difference in yields was not massive. The main headline was that the yield on the 10yr note issued declined from an all-time high of 6.98% to 6.08%; good news but there must have been some disappointment that the yield was unable to breach that 6% level.

The dollar has weakened overnight however as month end rebalancing flows by investment banks and pension funds have caused them to sell the greenback. Some “risk-on” moves have been seen from an FT report that that European banks will be looking for up to double the amount of money they requested in December from the ECB’s LTRO operation. The new auction is due on Feb 29^th but the figures that some are talking about are astronomical. The previous auction saw EUR489bn of loans given out; there is every possibility we could see more than EUR1trillion come next month’s event.

Data so far today has been poor with German retail sales slipping by 1.4% in December compared with an expected jump of 0.8%. While the retail sector is not as important to the German economy as it is to the British, it is obvious that a 1.4% fall will not do the national accounts any good at all. We remain by our prediction that the German economy will contract by 0.2% in Q4.

Moves will be unpredictable today as end-of-month flows and rumours are likely to drive markets. The main macro news is US Consumer confidence due at 15.00. Last week’s Uni of Michigan study showed further positivity and investors will be looking for an increase despite the slightly softer GDP number for Q4.

Good luck.

Latest exchange rates at time of writing