Tomorrow’s Greek austerity vote remains in the spotlight, with a tense atmosphere prevailing around the financial markets. Traders seemed to be increasingly optimistic about Greece’s ability to avoid default (for now) in US and Asian trade, dragging shares higher to the detriment of the safe-haven US Dollar, with the dominant argument mirroring the logic we discussed in detail yesterday. Confidence took a hit late in the overnight session however after civil unrest gripped Greece anew while an ECB policymaker threatened the administration in Athens.
Greek labor unions launched the fourth general strike of the year, shutting down government services, public transport and disrupting flights. Meanwhile, after European Central Bank policymaker Juergen Starkwas quoted in a Die Welt article saying he does not expect the international community to continue supporting Greece past July if the austerity package is not passed, adding ominously that “there is only this one plan A” that would allow further aid to be dispersed.
Looking ahead, S&P 500 stock index futures – a proxy for market-wide sentiment – show little conviction ahead of the opening bell in Europe, pointing to indecision. Currency markets are mirroring this lack of directional confidence, with most of the majors little changed against the greenback. On balance, we maintain a cautiously negative outlook for the greenback over the coming 24 hours. Despite the unsettling recent news-flow, the bottom line for Greece remains unchanged. Indeed, Prime Minister Papandreou’s survival of last week’s confidence poll in and of itself argues for austerity’s successful passage. Still, the current environment is highly unstable, keeping traders on the defensive until the vote is in the rear-view mirror and suggesting the majors may remain in choppy ranges for the time being.
The British Pound slumped in otherwise quiet Asian trade after perennially dovish Bank of England policymaker Adam Posen said yesterday’s report from the Bank of International Settlements criticizing low UK interest rates is “nonsense”. Posen argued that there is little evidence of rising UK inflation expectations, fueling bets that the BOE will not be unwinding monetary stimulus any time soon. The Japanese Yen narrowly outperformed in the wake of better-than-expected Retail Trade figures.
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