The story will simply not go away. Only yesterday I wrote that Greek PM Tsipras said they were close to an agreement sending the EUR through the 1.12 barrier. Yawn, cough cough and here we go again, this morning we hear another round of top level talks between Greece and her creditors FAILED to resolve the differences as the PM rejected the proposals that would have released the bailout funds necessary to avoid a default. I don’t mean to disparage the Greeks as I have many Greek friends, but for the love of mercy when will they wake up and smell the roses. How long do they honestly think they can go on rejecting the proposals put in front of them in the hope of agreeing to terms which they can live with and which satisfy the anti-austerity movement in Greece. In reality the market should be as fed up with the rest of us and should be hammering the EUR into a black hole. Ok the recent EU CPI saw the EU re-enter “inflation” and yes that’s a good thing, but this story with Greece is bigger, MUCH MUCH bigger. In fact if Greece does default and potentially exit the EU the repercussions will be so far and wide that the collapse of Lehman, Bear and AIG will seem like kids play. That is what the IMF/ECB/World Bank and Troika in general are concerned about. The financial systems globally are so intertwined and weaved together that a default by such a “strong” EU member will be a catastrophe for the financial markets which could see stocks collapse and the USD rise through PARITY not to mention the bank bankruptcies that will follow. The Cuban missile crisis was the closest event which nearly brought about the 3rd WW. Be rest assured, a Greek default and GREXIT will be a financial crisis that blows the 2008 crisis out the water.
The Greek PM told reporters this morning “The realistic proposals on the table are the proposals of the Greek government. We can’t make the same mistakes, the mistakes of the past,” he said. The commission said in a statement that “intense work” will continue and “progress was made in understanding each other’s positions on the basis of various proposals.” Months of antagonism and missed deadlines have given way to a greater urgency to decide the fate of Greece. Without access to capital markets, the country has to meet four payments totaling more than €1.5 billion to the IMF in June, while its euro-area-backed bailout also expires this month. Extensions are likely to be granted in the event an agreement is not reached. Tsipras added the demands by the euro area and the IMF for cuts in the income of poor pensioners and increases in VAT on power are unacceptable. “Ideas like cutting benefits for low-income pensioners, or raising the VAT rate for electricity by 10 percentage points, can’t be a basis for discussion,” he said. With a payment to the IMF due tomorrow, the markets will be holding their breath to see what happens. I know this goes against what I have written previously but there comes a point when enough is enough at which point the ECB/IMF should simply let Greece fall on her sword. After all we saw what happened to Caesar!!
Today sees the interest rate announcement by the BOE as well as the QE total (£375bn). No changes are expected on either. The GBP has been roasted vs the the EUR over the past 36 hours trading at 1.3630 (0.7335) as I write this. This was a EUR move rather than GBP weakness. The GBP remained resilient vs the USD trading above 1.53 (1.5320) as I write this. Don’t forget we traded as low as 1.5169 only 72 hours ago. Overall my view is the GBP (like other major currencies) are simply waiting in the wings before the USD starts its next journey to PARITY (vs the EUR), taking the GBP, CAD, AUD etc. with her. Already we have seen the JPY collapse to 124.25 in recent days after trading between 119-120 for weeks. People are constantly asking me when it will happen and I say you need to give it another month (I am ignoring Greece for this) when the EURO summer starts and liquidity thins out. Come September I think the financial world will be a different place. Warm your engines, the IDES OF SUMMER 2015 are coming!!!
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