Monday 26 September 2016

Daily Market Update: Another Greek bailout

Simon Barry

Published 25/05/2016 | 12:22

Greece flag
Greece flag

Greece is hitting the headlines once again with another ‘breakthrough deal’ with its international creditors following 11 hours of talks in Brussels.

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Greek Finance Minister Euclid Tsakalotos said that the Euro area agreement to unlock €10.3bn of aid for Greece and open the way for steps to ease its debt burden marks an “important moment” for the country.  Eurozone finance ministers and the IMF agreed a range of measures to restructure Greece’s debts when its €86bn bailout ends in 2018.  However, no figures on the actual concessions have been revealed.  Furthermore, they will be subject to political decisions by Eurozone countries. The most significant decisions will take place after the German federal elections next year.

Turning to the forthcoming UK EU In /Out vote, opinion polls in the UK suggest that the ‘Remain’ camp has a healthy lead over its ‘Leave’ rivals for the forthcoming EU referendum.  This has helped to sterling continue to push higher against both the single currency and the US dollar.  EUR/GBP has fallen from 77.4p to 76.1p since yesterday’s European open.  Meanwhile GBP/USD has jumped from $1.448 to $1.464 over the same time period. EUR/USD also continues to push lower and is currently changing hands at $1.114, down from $1.121 a 0800hrs yesterday.

Meanwhile the Institute for Fiscal Studies (IFS) has entered the EU referendum debate. This is the independent think tank that warned prior to the 2010 general election that the UK faced two parliaments of fiscal pain.  In recent months it has stated that fiscal austerity will extend into a third term (i.e. beyond 2020). This morning the IFS have warned that a Brexit scenario could add an additional two years of austerity measures. According to the IFS research a vote to leave the EU would cost an additional £20-40bn per annum. Today’s intervention follows news yesterday that the UK’s public finances are not in great shape.  The UK Chancellor’s plan to reduce the deficit and fix the public finances has started the fiscal year on a bad footing. Figures released yesterday confirmed that the UK government borrowed £76bn last year – £2bn more than initially estimated.  This means the UK government has borrowed £4bn more last year than it estimated at the March Budget.  

German economic data releases have been coming in thick and fast over the last 24 hours. We have had two top tier releases from Germany over the last 24 hours. The Eurozone’s largest economy expanded by 0.7% q/q in Q1, its fastest rate of growth in two years. The robust GDP growth figures were driven by consumer spending and increased construction activity.  German export growth also rebounded in Q1 to a healthy 1.0% q/q. The German ZEW and IFO surveys provide an indication of how the Eurozone economic powerhouse is faring in Q2. The ZEW survey of financial analysts saw a better than expected improvement in sentiment in May following three months of decline.  However uncertainties surrounding a possible Brexit scenario are weighing on German growth prospects in the months ahead. Germany’s financial analysts appear to be more pessimistic than the business community at large.  This morning’s influential IFO survey has revealed an improvement in both the current conditions and business sentiment in the months ahead. These indicators hit 9-month and 4-month highs respectively. Meanwhile German consumer confidence also rose to a 9-month high in May according to the latest GfK survey.

The latest US housing market figures suggest the economy is on an upward trajectory in Q2.  US new home sales in April rose by almost 17% m/m and hit an 8-year high in the process. Looking to the day ahead, there are no UK economic data releases due today. Meanwhile the key releases in the US are the Markit flash services and composite PMIs. The expectation is for the pace of growth in the UK services sector to accelerate in May.

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