Markets cheer the austerity plan
Despite massive protests the Greek parliament accepted the latest austerity plan that is about to generate extra savings of 28 bn EUR. Rumors that the Greek PM was about to lose as many as 4 hands along the way were not confirmed either – the plan was supported by 155 deputies (one party member was against but one from the opposition supported the plan). That means that Greece is very likely to get the next tranche of aid confirmed at the next EcoFin meeting (3rd of July) and avoid a default – at least for now.
Markets, which started discounting this scenario since late Monday, continued those movements as key resistances were broken on some key markets. On the EURUSD the bulls were able to push the pair above the upper limit of the wedge that kept it in consolidation. Consequently the pair stormed above 1,45 with a further short term potential offered by resistance as high as 1,47.
A strong rally took place on copper, following a month of a narrow-range consolidation. Similarly to the EURUSD the move was initiated by leaving the wedge formation that brought the price of copper from ca 9000 to above 9300 USD. In a short-term horizon the bulls have a room to pull the price to as high as 9500 USD where they’ll face an upper limit of a downward channel (engulfing the price since the beginning of the year). In the mid-term, however, the outlook for copper remains mixed at best and thus the downward channel might be respected.
Equities and oil advanced as well with the price of oil moving (back) above an important 108 USD level and paving the way towards 120 USD. However, one should be cautious considering a further upside potential on those markets. Firstly, the Greek problem might be moved aside for a while but it will not be resolved nor there will be any clue how it might be resolved (without default). Furthermore, other than Greece, markets have a slowdown in a global recovery to worry about and from this perspective rising oil prices is the bad news. The key US data are around the corner and should they once again disappoint (and they well might) the market optimism may evaporate soon.
Portuguese problem
While the market is still celebrating a move in Greece, another problem might be already brewing in Portugal. Portugal is about to reduce the GG deficit from 9,1% GDP in ’10 to 5,9% in ’11 yet the deficit was notoriously high at 8,7% GDP in the first quarter. The number is higher than indicated by the central budget numbers which looked clearly better in comparison to ’10 and that may raise some concerns. Portugal has aid guaranteed for now but should it come short of meeting deficit targets, a pressure for further savings may appear soon.
Events to watch – US data and votes in Greece
The plan has already been confirmed but the details will be voted today. Unless there is a surprise (of a proposal not being voted in) that shouldn’t impact markets noticeably anymore. Attention is moving back towards the US macroeconomic data. Today’s claims (8.30 ET, 14.30 CET, consensus 419k) and Chicago PMI (10.00 ET, 16.00 CET, consensus 54 pts.) will be just an introduction ahead of the key ISM (tomorrow) and payrolls (next week) reports.
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Przemysław Kwiecień PhD, Chief Economist |
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