Another Monday morning and another summit on Greece that needs a decision, or the balance of the European economy will slip back towards the politically unthinkable. Finance Ministers will meet in Brussels this afternoon to try and bring together the latest Greek austerity package passed a fortnight ago, the deal on haircuts on private sector holdings of Greek debt and the latest EUR 130bn bailout to prevent default come March 20th. A backup summit on March 1st could be needed if these resolutions are not decided upon, but for all those concerned a decision today would obviously be optimal. A disappointment could be massive, however we think unlikely.
Risky assets and the euro are higher this morning after the People’s Bank of China decided to cut the Reserve Requirement Ratio. This means that lenders must set aside less cash as a proportion of their loan book, fuelling lending and hopefully sustaining growth. There is a lot of room for more of these cuts should the Chinese growth engine slow more than expected over the coming months and China analysts expect 2 or 3 more through 2012.
This decision, combined with the likelihood that European Finance Ministers will get their act together have pushed equities higher in Asia and the European open is comfortably in the green as well. News from Japan that they are committed to helping Europe through the IMF won’t have hurt either. This follows the news from China last week that they too supported Europe’s endeavours.
Today’s trade is likely to remain range-bound before the EU summit at 3.30pm and as a result of the President’s Day holiday in the United States. Any predictions for after the summit are obviously dependent on huge event risk but, assuming that a deal is signed today we should see risk trip higher slowly through tonight’s Asian session.
The data calendar is quiet apart from short-term paper auctions from the Netherlands and France at 11am and 2pm respectively. All eyes will be on Brussels.
Indicative Rates Sell Buy
GBPEUR 1.2009 1.2036
GBPUSD 1.5843 1.5868
EURUSD 1.3180 1.3202
GBPJPY 125.84 126.12
GBPAUD 1.4726 1.4753
GBPNZD 1.8873 1.8902
GBPCAD 1.5744 1.5773
NZDUSD 0.8384 0.8402
GBPZAR 12.17 12.22
USDZAR 7.6752 7.7053
GBPPLN 5.0080 5.0358
EURJPY 104.65 104.92
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