So, the Greek PM Tsipras “won” 4 months reprieve from Troika creditors, while at the same time keeping his Syriza party on board. As conflicts go, a ceasefire has been agreed, now we wait for the formal agreement between the “warring” parties. Greek stocks and bonds rose as a result of the tentative agreement as finance ministers approved a bailout extension as Greece pledged to revamp tax collection, consolidate pension funds and maintain sales of state-owned assets. The agreement now paves the way for the ECB/IMF to continue supporting the Greek banks, while at the same time buying time for Greece to convince her creditors that Greece will deliver. As we have noted on several occasions, an agreement was always expected to be reached. What was not known was what the agreement comprised. Now we have a little more clarity and breathing space, authorities on both sides will be working hard to make the promises a reality. The ECB and IMF will still need to be kept content by the Greek’s governments pledge to come good on their promise to deliver the reforms she has pledged. No easy feat by any stretch, but it is a start and its progress. The deal will fire a warning signal to other EU members that while there is “some” room to manoeuvre, there is NO ROOM to bully the EU into changing the landscape and ultimate terms of their austerity packages. Bottom line, if you run up debt you better have a plan in place to pay the loan back. Debt can be a wonderful thing and can help build empires. But if you cannot service that debt, the entire house of cards that was constructed will come crashing down. Look at what happened to the Billionaire Reichmann brothers from Canada. Controlling what was once the world’s largest property empire (Olympia and York) they went on (BRILLIANT VISIONARY) to build Canary Wharf. Then in the mid 90’s their vision, brilliance, exuberance and business empire came crashing down (they could not pay back their creditors) and O&Y declared bankruptcy and the Reichmann fortune was shattered. As you know the cash rich Qatar Investment Authority have now taken control with a cash buyout (they seems to be buying up London).
As I mentioned yesterday, the Bank of Israel cut rates citing inflation and an overvalued currency. I warned yesterday that this is a clear signal from the BOI that they are looking to drive the USDILS above NIS4.00 vs the USD. Having traded as high as 3.9657 this morning, the currency has fallen back to trade at 3.9400 as I write this. Just to repeat what I said yesterday, you need to seriously take note of what the BOI are saying and ensure you are hedged for a weaker ILS over the coming weeks/months.
Over the past few months with all the rhetoric from the FED/Gov. Yellen most banks have been calling for a US rate hike in early Q3(Sept/Oct). PARITYFX on the other hand have been saying no – we think the hike will come EARLIER, around May/June (most likely June). Seems a prominent high street UK bank has read our blog and has just published their economic thoughts on the FED and when they think the FED will hike. Here is an extract: ” We read Fed Chair Janet Yellen’s prepared testimony to the Senate as indicating the Fed is readying a change in its forward guidance, which we see coming at the March meeting. However, the Fed is also saying that such a change in March would not automatically signal a rate hike in June, but, instead, would open the door for rate hikes in June or after, depending on the incoming data flow. We retain our call for a rate hike in June and look for the committee to alter the March statement by removing “patient” in favour of other language that suggests full data dependency. Risks to our forecast skew in the direction of a later take-off, especially if the downward pressure on core inflation from a stronger dollar is greater than expected.” As that wonderful advert on TV, “you should have gone to Specsavers”, we could change that to read, you should have listened to PARITYFX :-). At 3pm today, Federal Reserve Chair Janet Yellen is to testify on the economic outlook and recent monetary policy actions before the Joint Economic Committee. Expect some fireworks and volatility following her comments. Just like I noted above with our views on USDILS, the US rate hike “ball” is in motion so it is advisable to ensure you have taken the necessary steps to hedge your FX.
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