Prospects For Greece Not Lightening

Is your high street bank ripping you off

Risk remained ‘off’ with equities and risky assets slipping again yesterday as the situation surrounding Greece became even more hysterical. The euro rebounded slightly overnight but has been sold once again this morning and it is in fact sterling that has had the worst night of it all.

The Greek Prime Minister George Papandreou will reshuffle his cabinet today ahead of the vote of confidence in his ability to lead the PASOK party that is due this weekend. This is all by the by unfortunately unless the Greeks can agree on a new austerity programme as it still remains unlikely that we will see the Germans and IMF issue the latest tranches of their bailout commitments. Now, the Guardian newspaper are running with an exclusive saying that the IMF may have strong-armed the Germans to pay their next lump already with the IMF threatening to trigger a default if they do not do so. This has not been confirmed yet but is keeping the single currency bid.

It is not just Greece that is affected by this news however. Spanish 10-year bonds leapt to 5.74% yesterday, an 11 year high. The Spanish authorities also failed to raise the maximum amount of EUR3.5bn at an auction yesterday and what they did raise was at a higher yield than previous sales.

Sterling has lost ground over the past 24hrs after a very poor retail sales number for the month of May. It was inevitable after the boost that the royal wedding provided that we would see a fall last month but a 1.4% dip is pretty horrific. There had been hopes that the purchasing of Olympic tickets would provide a injection of spending but alas a fall in food sales to levels not seen since June 2008 as a result of soaring food price inflation put an end to any hopes of a strong number. Sir Mervyn King stated Wednesday night that the MPC “is watching extremely carefully for any signs of a pickup in domestically-generated inflation and it will take action as soon as it is appropriate to do so” however these retail sales numbers suggest that domestic inflation is a long way off. The one thing that we can take from this is that Q2 GDP in the UK is likely to be ghastly.

It seems redundant to say that political developments from Greece will be the main driver of things today. Bloomberg is already reporting that the Finance Minister Papaconstantinou has been replaced but we have seen no confirmation of that yet. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and we doubt people will want to be long euros through the weekend.

Indicative Rates Sell Buy
GBPEUR 1.1371 1.1397
GBPUSD 1.6103 1.6124
EURUSD 1.4139 1.4162
GBPJPY 129.59 129.87
GBPAUD 1.5281 1.5307
GBPNZD 2.0018 2.0050
GBPCAD 1.5833 1.5865
NZDUSD 0.8035 0.8052
GBPZAR 11.01 11.06
USDZAR 6.8341 6.8646
GBPPLN 4.5220 4.5543
EURJPY 113.79 114.04

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