GBP/EUR 1.3696 (0.7302)
The US Non Farm Payrolls reading for May, released on Friday, surprised to the upside with employment growing by 288,000 hardening expectations for a September rate hike from the Fed. A Reuters survey conducted in the immediate wake of the release showed that Wall Street’s top banks now expect a first rate hike in September with another to follow before the year end. The dollar spiked higher rallying 1.5 cents against sterling and the euro and although it gave back some of those gains, it has held strong close to 13 year highs against the yen. US economic data will now be closely watched to see if the rise in employment is feeding through to a broad-based recovery in economic activity. With this in mind, Thursday’s US Retail Sales and Friday Producer Price Inflation will receive particular attention.
Today’s key event is the annual G7 meeting. Unsurprisingly, given Russia’s exclusion, tensions in the Ukraine and sanctions against Russia are high on the agenda as is the negotiation between Greece and its creditors. The US and Canadian leaders have voiced concerns about the lack of agreement between the Greek government and its creditors. These concerns were also expressed by the markets on Friday, with the Greek stock market down 5% and 2 year Greek government bond yields rising almost 2% to over 25%, after the decision by the Greeks to delay its payment of €300m to the end of June. The bromance between the European Commission President Juncker and Greek Prime Minister Tsipras also seems to be faltering with Juncker accusing Tsipras of misrepresenting proposals by the international creditors. Pressure on Tsipras is also coming from the Greek parliament with members of the ruling party Syriza calling for snap elections to secure public approval for any red line concessions to the country’s creditors. Increasingly, it seems difficult to see how an agreement can be reached that will satisfy all parties, allow Greece to remain within the euro and provide it with the €25-30b financing gap reports suggest the country will have to bridge between now and the end of 2016.
Datawise, we are a bit light on this week. Apart from the already mentioned US data, CPI from Switzerland (tomorrow) and Wednesday’s Eurozone GDP are the main releases with the potential to move markets.