Markets ambivalent to Greek deal

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Greece has got its deal. Overnight, following a marathon session of negotiations, EU finance ministers agreed the EUR130bn bailout in order to prevent a messy default come the EUR14.4bn bond repayment due March 20th. Private holders of Greek debt are now set to lose 53.5% in a haircut of their holdings and Greece faces years of austerity but the deal has been signed. This should see the debt to GDP ratio move back to 120.5% by 2020 although this depends on Greece not slipping further into recession (at this moment, unlikely) and further austerity maybe being needed.

Interest rates on loans to Greece have been cut to 1.5% over Euribor so interest rate costs don’t saddle Greece to badly, and we expect the Portuguese and Irish to ask for similar relief moving forward.

I would say now that the focus on Greek issues now moves past March to the April elections. Protests and civil unrest are likely to test the resolve of the Greek political leaders and although they pledged to stay the course post-election, a man will promise a lot of things when he has a gun to his head.

The celebrations have been lacklustre however with Asia trading lower on the announcement and European markets opening flat although the euro has been able to keep the gains against the dollar and sterling it made yesterday. We have seen shifts lower in risk in the past year in the immediate aftermath of debt deals being signed and we believe that this will be contributing to the lack of euphoria surrounding the deal. The fact that enforcing it will be a nightmare will not be helping either.

Eurozone bond yields have moved higher this morning in reaction to the deal. Portuguese 10yr debt is 53bps higher to 12.8% with many thinking that this could be the next country to come under real pressure. Italy’s are 1bp higher at 5.49% while Irish and Spanish are flat so far. Germany’s and the UK’s are also unchanged on the day so far.

The UK public sector finance figures due out at 09.30 should show that the Chancellor’s deficit reduction plans are coming along well and should be below the expected £127bn target by the publication of this year’s Budget. This follows an expected glut of tax income following the closing of the tax window and the submission of tax returns.

Despite the debt deal being signed, a massive jump higher is not expected today and we would suspect that the path of most pain is for risk to remain offered. It is likely further headlines will determine the market’s moves through the next few sessions.

Indicative Rates Sell Buy
GBPEUR 1.1943 1.1971
GBPUSD 1.5831 1.5860
EURUSD 1.3240 1.3262
GBPJPY 126.26 126.53
GBPAUD 1.4778 1.4804
GBPNZD 1.8909 1.8937
GBPCAD 1.5745 1.5774
NZDUSD 0.8364 0.8387
GBPZAR 12.15 12.20
USDZAR 7.6521 7.7079
GBPPLN 4.9725 4.9995
EURJPY 105.62 105.89

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