The US dollar is firmer but is largely within the ranges seen yesterday.
The market awaits developments from the G20 meeting that concludes today and
meeting of European finance ministers followed by the heads of state
gathering.
The draft of the G20 communique seems to lean against the currency war
motif that is played up in the media and among some analysts. The
fact of the matter is that the supposed belligerents do not see it that way and
are encouraging countries with weak economies to continue to accommodative
monetary policy. The underlying idea is that simply pursuing
currency devaluation as goal is a zero-sum exercise. The
beggar-thy-neighbor takes others' demand. Easier monetary policy is a
non-zero-sum insofar as it spurs demand.
There does appear to be some movement in the Greek position that may
still form the basis of a compromise. This is seeing a bit of a
recovery in Greek bonds and stocks today. The 10-year bond yield is off
35 bp to a still-high 10.4%. The 3-year yield is off 110 bp to just below
20%. The Athens stock exchange is up about 2.3%, led by a 4.5% bounce in
financials.
The broad outlines of Greece's new proposals include accepting around 70%
of the existing arrangement and possibly tapping part of the 7 bln euro tranche
that Athens has been refusing. The new Greek government will propose
new reforms and wants to draw on the expertise of the OECD. According to
some reports, Greece is also proposing the transition period (bridge loan) extend
through August rather than May. Greece also wants European
creditors to forgo nearly 2 bln euros in profits earned on Greek debt and
re-purpose 11 bln euros for bank recapitalization to help address the
non-performing loans. It also is pushing for a smaller primary budget
surplus.
That said, the official creditors do not appear to have softened their
position one iota. This seems to be the third iteration of the new
proposals from the new Greek government. It is almost negotiating with
itself. Still the basis for an agreement exists. It most certainly
will not be a meeting in the middle. Rather something like 80-85% of the
existing framework will likely be retained and some modest concessions, like
the smaller primary budget surplus and easier terms on existing debt in
exchange for new reforms. Syriza is more likely to implement the
reforms to curb tax evasion and rent-seeking behavior than previous
governments.
Turning to the macro-economic news, China reported soft inflation
figures. This spurred speculation of a policy response and helped
lift local stocks and may have given the Australian dollar a brief lift.
Headline January CPI rose 0.8% year-over-year, half of the 1.5% pace seen in
December. Food prices fell sharply and are now up 1.1%
year-over-year. They were up 2.9% in December. Non-food prices are
edging closer to deflation with a 0.6% increase, down from 0.8%.
Norway and Switzerland also reported CPI figures. In Norway,
inflation was actually a touch stronger than expected, and this may be helping
to underpin the krone, which up 0.25% against the dollar is the strongest of
the majors. Headline CPI slipped 0.1% on the month (consensus -0.3%)
while the year-over-year rate eased to 2.0% from 2.1%. The underlying
rate was unchanged at 2.4% year-over-year.
Swiss CPI fell 0.4% in January for a -0.5% year-over-year pace, after a
-0.3% in December. On an EU harmonized methodology, Swiss CPI is
-0.1% year-over-year. Note that yesterday's sight deposit data suggest
that the SNB did not intervene last week. It apparently did not need to
as the leaked (planted?) story about the informal range (whatever that means)
between CHF1.05-CHF1.10 got the market to do the work for it.
Three European countries reported
January industrial production data.
The two eurozone members, France and Italy, both reported better than expected
data while the UK was slightly disappointing. France’s numbers were, in particular, impressive
with a 1.5% rise in December, five times more than the consensus
expectation. It was led by a 1.2% rise
in manufacturing output, three times more than the consensus. The consensus expected a flat Italian
reading. Instead, industrial production
rose 0.4%.
This is consistent with what we detected
as signs that the euro zone economy was improving at the end of last year. The eurozone reports its estimate of Q4 GDP
at the end of the week and there is upside rise to the consensus 0.2%
forecast.
The UK data was somewhat disappointing. Industrial output fell 0.2%, a little more than
expected. It appears that the oil sector
was a significant culprit. Oil and gas
extraction was off 3.1% on the month. The
government played down the impact of falling oil price and tended to emphasize
extended maintenance in one of the large North Sea fields. Manufacturing output rose 0.1%. The consensus expected a 0.1% decline. The 2.4% increase year-over-year is the best showing
in four years.
The North American session features the JOLTS report and the Fed’s Lacker on
the economic outlook. As the G20 meeting
concludes, there will be a number of press conferences that pose some mild
headline risks.
Consolidative Tone as Dollar Awaits Fresh News
Reviewed by Marc Chandler
on
February 10, 2015
Rating: