GBP/EUR 1.3590 (0.7357)
Yesterday saw an increase in volatility and risk aversion with European markets particularly affected as it became apparent that a resolution to the Greek impasse wouldn’t occur before today’s first IMF payment of €300m needed to be made. This volatility was felt across all European markets as shares fell to their lowest levels in almost a month and bond markets also felt the brunt of selling with bonds also being sold off, causing yields to spike higher with the moves most noticeable in Greek debt and other lower rated credits. On a more positive note, the euro managed to rally, taking solace from stronger fundamentals with the influential Eurozone PMI index for May up to 51.4 from 49.5, and above the 50 boom/bust line. US stocks also fell yesterday ahead of the all-important jobs data this morning. Declining oil and gold prices also weighed on energy and materials shares, which led declines in the benchmark S&P 500.
We’ll stay with the US where we continue to see mixed signals coming from the world’s largest economy. Today’s Non Farm Payroll figure could look to be a make or break moment for the economy. A bad number here could support the IMF’s view who yesterday urged the Fed to wait on an interest rate hike until 2016. In its annual review of the US economy the IMF downgraded growth expectations for the US to 2.5% for the year, down from its last estimate in April of a 3.1% expansion. However markets seemed to ignore this view as the greenback continued to climb throughout the day yesterday. The fact that this review has been mostly overlooked makes today’s jobs report all the more important as a big miss here could see the markets with its tail between their legs. The Non Farm Payroll figure is due to be released at 13:30 GMT today where the figure is for 226k new jobs, a slight increase in April’s 223k,.
To Europe and it is again Greece who remain in the spotlight this morning as the fiasco continues. We were informed by the Greek PM on Wednesday evening that today’s repayment to the IMF of €300m would get paid on time, however Greece’s creditors were left somewhat shocked as Athens now says it will bundle the repayment into one transfer at the end of the month. Tsipras was however quick to state that Greece has enough money to make the payment, but again are these just words? This move is certainly likely to dent relations between Greece and its creditors, while we are also hearing of an unrest within the Greek government itself with certain sections of his ruling party unimpressed with how negotiations are going. One possible outcome we could see here is a referendum on creditor proposals or snap elections, which would probably only see the Syriza party re-elected which would see us back to square one again.