Weekly Market Review 16-22/02/15

Greek Crisis Looms

This week, as the deadline for the Greek bailout approaches, worries of a possible Greek bankruptcy and an exit from the Eurozone are likely to grow. Although there is no specific event or data that can shed more light on where the crisis is likely heading, the buildup in tensions is set to create elevated levels of volatility and a general uneasiness among investors. At the center is the request of the new Greek government, led by Prime Minister Alexis Tsipras, to sweeten the bailout deal with the European Commission. From Greece’s perspective, Tsipras views the current deal as unsustainable and the option of Greece exiting the Euro as a better choice. For Germany and France, bowing down to the pressures from the Greek government may be a tough sell to voters at home which may then open the flood gates for other members to try and sweeten their own deal; indeed, that is a slippery slope that Germany and France will wish to avoid. The tensions surrounding the Greek bailout will either escalate or deescalate this week; regardless, Greece uncertainty will clearly dominate appetite for the Euro, Pound Sterling, Gold and, of course, the US Dollar as a safe haven.

Central Banks Round

While the Greek crisis looms in the background, investors will get an important overview of global monetary policy this week. In Japan, the BOJ is expected to hold a press conference and shed further light on the option of further easing and will thus dominate Yen and futures on the Nikkei. In the UK, in the aftermath of its Inflation Report, the Bank of England meeting minutes, the protocol from the BoE’s last monetary meeting, will shed light on the voting and the division among the members of the Monetary Policy Committee. If the votes suggest that the UK central bank is tilting towards a U-Turn in its policy, it would undermine Sterling even further. On the other hand, a growing majority in favor of a rate hike might just have the counter effect and support Sterling. Then comes this week’s main event, the FOMC minutes, the protocol of the Federal Reserve’s latest rate decision.

FOMC Meeting

The FOMC meeting minutes will undoubtedly be the most important of the releases due this week, and the protocol, investors hope, will reveal just how soon a rate hike in the US might be forthcoming. Unlike in the UK, where reasons for the BoE’s postponement of rate hikes are plentiful, in the US, the Fed is running out of excuses. With growth in the US for 2015 expected to hit 5% and unemployment as low as 5.7%, the mildly low inflation figure is the only quasi-viable reason the Fed can point on to delay a rate hike for even a little bit longer. And this is what investors will focus on; if the Fed members voice more concerns about a global slowdown and falling inflation rather than stress the need for higher rates than this could somewhat undermine Dollar strength. Of course, this is on the assumption that the Greek crisis does not escalate. However, if Fed members show that they are ready to shift into a tightening mode, then the Dollar could gain more ground vs its peers.

Down to Business

Overall sentiment this week will depend on two elements, namely the Greek crisis and the Fed. Any escalation in the Greek crisis, that is a greater chance that Greece might exit the Eurozone, could push investors to place safe haven bets on the Dollar, the Yen and perhaps even Gold. The second element, the Fed’s FOMC minutes, will dominate sentiment in the event there are no further developments in Greece. If the consensus grows among Fed members to raise rates this year, it will be reflected in the protocol and it will largely support Dollar gains vs everything else.

On the plate

RBA Meeting Minutes (Tuesday) – After the RBA rate cut, investors will seek for clues on the possibility of further rate cuts from the RBA. If indeed the RBA will reveal in its protocol that more rate cuts are on the agenda, the Aussie could retreat lower.

UK CPI(Tuesday) – In preparation for the BoE minutes later this week , the CPI figures (inflation) will provide investors with a fair estimate on the chance the BoE will postpone rate hikes. If CPI YoY will fall below 0.5% YoY, it could lower the chances of a rate hike in the upcoming months.

German ZEW Index (Tuesday) – Will provide a reading on German economic sentiment.

BoJ Press Conference (Wednesday) – Does the BoJ expect to ease more? This will be the question investors expect to be answered. If the answer is positive, the Yen could slide vs its peers. If not, the currency could gain amid risk aversion.

Bank of England Minutes (Wednesday) – Will shed light on whether the BoE could in fact postpone rate hikes, which could hit Sterling.

FOMC Minutes (Wednesday)- The main economic event of the week. If the Fed’s protocol will reveal the Federal Reserve is inching closer towards a rate hike, the dollar could gain further ground.

UK Retail Sales (Friday) – Will mostly affect FTSE100 futures in London. If UK retail sales rise more than 4.3% YoY, it could help the FTSE100 gain some ground.

Chart of the Week- IBEX35


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