Just when you think it’s over Germany’s Finance Minister Wolfgang Schauble has suggested that a voluntary exit from the Eurozone might be a better solution for Greece than the bailout agreement. Wow! I’m not going to say I disagree with him, in fact I said just the same thing to some bankers yesterday evening, but that was over a glass of wine in the relative privacy of a bar in Mayfair. Herr Schauble made his comments in the Bundestag. Again… wow! This is not to be taken as meaning that Germany wishes to retreat from the bailout agreement, it is well known that Chancellor Merkel and the Finance Minister have slightly different views on the Greek question. Nothing wrong with that, Herr Schauble is a Finance Minister and prioritises economic realities while the Chancellor is just as concerned about Germany’s standing in the world, and geopolitics. There is a natural conflict here. In any case there has been no damage to the euro as a consequence of the Finance Minister’s comments – the pound sterling and US dollar have needed no outside help, other than their esteemed central bank Heads.
It almost seems as if released from the fears of Grexit, Yellen and Carney have been able to talk up the prospect of imminent interest rate rises in their respective countries, and rightly so. For his part, Mario Draghi, has professed his confidence in Greece staying in the Eurozone (i.e., using the euro), and has extended the limit for emergency loans to Greek banks by €0.9bn over one week. Greek banks are expected to open on Monday after being shut for two weeks. They will offer “all services which do not give rise to capital flight”. One imagines you can make withdrawals to stock up on groceries but liquidating your account will be a big no no! Clearly capital controls will still be maintained. The ECB is also providing bridge financing to the tune of €7bn today to prevent Greece defaulting on its ECB loan which is due 20th July. All in all, Draghi’s press conference was greeted warmly by markets with European stocks achieving month to date highs.
Talking about stocks, I will be fascinated to see what happens with US equities today, the recent rally has taken the US index right up to possible trend-line resistance. If we finish higher it could be a sign of new market highs to come. If…
We have some inflation data coming out later in the United States to look forward to. This morning has the feel of markets wanted to take a breather after some decent moves in recent days. Still I wouldn’t be surprised if the trend is maintained at least until much later in the day. Bottom line, the scene looks set for continuing dollar strength. As I mentioned some weeks ago, absent an immediate Greek crisis, the market will focus on economic fundamentals and the prospects for interest rate normalisation in the countries with the strongest economic recoveries – the United States and United Kingdom. This looks like what we’re seeing, and USD and GBP are the stronger for it.
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