GBP/EUR 1.3740 (0.7277)
The tone across global equity markets has picked up in the last 24 hours, European stocks bucked six days of selling. The DAX was up 1.6% with major indices all showing gains in the last 24 hours, the Euro ebbed and flowed on Greek news flow and as such had a mixed day. Early indication initial Greek proposals were not satisfactory saw EUR selling across the board, until suggestions that Greek creditors may accept stepped reforms by Greece saw the single currency on the bid. There was no official clarification on any of this, just the usual comments from “people close the to issue” so we always take it with a pinch of salt.
The USD traded to a two week low, USD selling started when the head of the BOJ suggested YEN was “very weak”, this encouraged JPY buying and favoured USD selling, hopes for a Greek resolution saw the greenback lose out against the EUR and even GBP managed to rally some 1.25% from yesterday’s lows to overnight highs. In overnight trade the JPY gave back some of its gains on the back of its largest one day rally in 5 months. The AUD benefited from a weak USD through yesterday’s trading, this was further supported by better labour markets data, throwing a damp cloth over RBA governor Stevens dovish commend from Tuesday, AUDUSD up 2.5% from Mondays lows.
Greece continues to be centre point of focus for many markets and as mentioned above, it is important to sift through the headlines and hyperbole and look at the key details coming out. One thing is apparent, it appears Greece are willing to up the intensity of their negotiations, a sentiment echoed by PM Tsipras overnight where he stated he wants EU leaders to realize Greece needs a sustainable solution, but are willing to intensify talks bridge the differences. Greek leaders want sustainable Greek debt, the issue is whether this is achievable at all, and more importantly under ECB/IMF imposed reforms, this is the key sticking point and if both sides fail to meet in the middle the risk of a “Grexit” will intensify in coming weeks.
One thing appears to be shifting in Greece and that is public sentiment, according to a Bloomberg report 50.2% of Greeks now believe leaders should accept creditor’s proposals. While the public’s satisfaction with the government’s handling of talks has dropped to 45.5% from 50.5%. These polls are always open to interpretation but a shift in domestic support would be a positive step for Greek creditors. There is no major data from Europe this morning and as such we’ll be focused on anything Greek related, the EUR trading lower this morning so far, down .7% vs USD since the European open, and .3% vs GBP.
GBP was on the rise through much of yesterday, gaining ground against the EUR and USD in tandem. Better than expected Industrial Production data overshadowed some weaker manufacturing prints, industrial production was up 1.6% year on year through April vs just .6% expected. There was further support for GBP with the NIESR GDP estimate for May, the estimate posted growth at .6% vs .4% expected, revising up March’s reading to .5% as well. This is not an official GDP reading but growth above .6% would suggest annual GDP between 2.8-3%. Last night’s annual mansion house speech by Chancellor Osbourne and BOE Governor Carney passed without much fanfare for GBP. There was no mention of monetary policy or timing of rate hikes and as such GBP is likely to be open to larger USD and EUR flows.
There is little in the way of major data to attract attention in the European session but in terms of high profile event risk US retail sales is not far from the top and headlines this afternoon’s economic calendar, with sales expected to have grown 1.2% through May, indicating the largest gain in 14 months. While US economic data has generally firmed up relative to consensus forecasts the retail sales figures have been stubbornly lower than expected. Any indication retail sales are picking up should spur hopes of a Fed rate hike, and support the USD. The reality is however that the Fed will still need to see more from the economy before a rate hike becomes a reality, June 18th is the next Fed meeting but should the Fed remain on hold there, we may not see US rate hikes at all this year.