China growth cuts and Greek debt swaps hurt risk at open

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The problem of European debt, and in particular, that of Greece has reared its ugly head once again over the weekend, as officials have admitted that the Greek debt swap has not been progressing as well as some had come to expect. The level of participation from private investors is what seems to be the problem, and who can really blame them. They have until Thursday night to agree to take losses on the debt or Greece could enforce the so-called Collective Action Clauses or CACs. These would force the remainder of these bondholders to swap their assets for new Greek debt, and would probably result in any insurance contracts against default, in the form of CDS, to be paid out. The scariest situation would be should less than 66% agree to the deal then even those CACs are invalid and the deal would be off, reigniting fears of a default.

Haven currencies are in demand so far this morning with USD and JPY strong on those fears over Greece but also news from China that the government has cut the country’s growth target going forward. We have long been proponents of the belief that China needs to shift away from the manufacturing base and balance output through increasing consumption. These cuts do not mean that they expect growth to fall in the short term however, but instead are showing the market that should GDP fall below 8% then it is not the end of the world. Asian shares are also lower on the session as a result of the news.

The world’s services sectors are in the news this morning in the last round of this month’s PMI numbers. UK Manufacturing and Construction have once again been above 50.0, denoting expansion, and the services sector figure released at 09.30 is expected to make that a hat-trick. Last month’s rocket number of 56.0 is not going be matched but with consensus looking for something around 55.0, growth should not be a problem. Overnight a business confidence survey from Lloyds has shown a rebound in to positive territory for the first time since September of last year.

Services PMIs are also due from Italy (08.45), France (08.50), Germany (08.55), the EU (09.00) and the ISM number from the US (15.00).Eurozone retail sales are also due at 10.00 and are expected to be soft following the huge slide in German retail sales last week on oil price pressures.

Hope you had a restful weekend as this week is likely to be a busy one. The Bank of England and ECB meet on Thursday,

Indicative Rates Sell Buy
GBPEUR 1.1973 1.2001
GBPUSD 1.5796 1.5713
EURUSD 1.3180 1.3203
GBPJPY 128.39 128.66
GBPAUD 1.4784 1.4811
GBPNZD 1.9171 1.9200
GBPCAD 1.5683 1.5713
NZDUSD 0.8244 0.8351
GBPZAR 11.91 11.96
USDZAR 7.5353 7.5650
GBPPLN 4.9304 4.9608
EURJPY 107.12 107.38

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