Good morning

The news we have been waiting for: Greece has made the next move to avoid going bankrupt and stop the recent run on the banks by submitting a list of structural economic reforms to the EU. The reforms are aimed at appeasing EU creditors and securing a 4 month bailout lifeline which was tabled last Friday. Should the EU’s finance ministers endorse the proposals an extension until the end of June of Greece’s bailout programme will begin saving us the worry that the present bailout will expire at the end of the week with no agreement in place. As I mentioned yesterday, the proposals will include an overhaul of Greece’s tax inspection regime aimed at improving tax collection and a crack down on widespread tax evasion among the wealthy. Athens will also crackdown on the illicit tobacco and fuel trade as well as reform her labour laws. Furthermore the proposals were said to leave recent privatisations untouched, not to re-employ workers in the public sector, and halting home repossessions caused by failure to repay loans. In a nutshell, Syriza blinked first by accepting the terms laid out by troika (EU/IMF). In effect the Greek government will stabilise her economic and fiscal policies and renounce any unilateral moves to amend the terms of Greece’s bailout. Greece is therefore committed to fully repaying the debt mountain. In return, Greece gained two major changes: (1) a likely reduction in the primary budget surplus – the excess of revenue over spending when debt-servicing costs are excluded – allowed to Greece by the EU this year, and (2) the leeway to propose her own fiscal and economic policies rather than having them determined by the troika. Once the EU/IMF and ECB feel satisfied that the terms are to everyone’s satisfaction, the €7.2bn still available for Greece can be paid out. This money is Greece’s lifeline without which she will surely fall on her sword. Germany’s finance minister, Wolfgang Schäuble, said Greece would not get one € until the end of April at the earliest. He added that reality had caught up with the new Greek government. In a statement of Friday when the agreement was tentatively agreed “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the [EU, IMF] institutions,”

As a result of all this toing and froing the EURUSD initially climbed above 1.14 handle but has since settled back towards 1.1330 over the past few hours. I have said this repeatedly, Greece could not afford to play hardball and risk alienating her creditors. So normal operations resume!!! If you asked me now what my overall feelings were towards the EURUSD, I would tell you the same thing I said at the beginning of January – EURUSD IS GOING TO PARITY – END OF!!! If you then followed that up with WHEN – I would answer SOONER THAN the market expects!!! With the FED likely to start raising rates END Q2 (market expects later – WHAT THIS SPACE) I think that in itself will give the USD the “ammo” to drive lower. What’s more, the ECB will be only to pleased to see a weaker EUR which equates to making EU goods and services more attractive internationally.

In a “shock” move overnight the BOI (Israel) CUT interest rates by 0.15% to 0.10%. The BoI press release provided a strong rationale for the base rate cut, emphasizing ILS appreciation during the past month, “The Monetary Committee is of the opinion that in view of the increased rate of appreciation, and its possible effects on activity and inflation, reducing the interest rate to 0.1% is the most appropriate step at this time in order to support achieving the policy targets.” In addition, the statement emphasized that inflation had slowed considerably in January with energy being the main contributing factor, shaving 0.7% off inflation. The BoI also mentioned reduced water rates, the lower housing component, and seasonal factors, as well as a loosening of global monetary policy conditions by major central banks. The BoI indicated that it would monitor the situation and is apparently prepared to rely on QE in the future if needed. “The Bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market.” Just like her EU counterpart looking for a currency weakening and thus boosting exports and stifling imports, the BOI “apparently” WANTS USDILS to cross the 4.00 threshold. Alongside the interest rate cut, the Bank of Israel can also be expected to continue intervening in the foreign exchange market with the aim of boosting the rise in the exchange rate and break the psychological 4.00 barrier. I don’t think the BOI could make it ANY MORE CLEARER, the USDILS is going to depreciate so you had better make sure YOU HAVE HEDGED YOUR FX NEEDS!!! 

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