Greek Revival?
This morning all eyes are on the vote that Greece must undertake in order to continue functioning as an economy. While the austerity vote is imminent, there really is no other choice. While rioters dominate the headlines, common sense must prevail.
As a result, the Euro has been moving higher as have been stocks and commodities in a decidedly risk-on sentiment. Yesterday, the Euro moved much higher after ECB President Trichet hinted that rates may be raised at the next meeting despite the Greek drama that’s unfolded.
It will be interesting to see if this becomes a sell the news event or if the markets affirm that it is game on again.
One other economy that appears to be in need of some type of action is Canada. This morning’s CPI data came in much hotter than expected showing signs that inflation is on the rise and must be addressed. This means that rate hikes may be forthcoming.
In the forex market:
Aussie : The Aussie is much higher as risk appetite has been driving markets for the last two days.
Kiwi : The Kiwi has jumped much higher as it has been sold-off recently and risk sentiment is decidedly in favor at the moment.
Loonie : The Loonie is also flying high after CPI data showed an increase of 3.7% vs. an expectation of 3.3% which means that inflation is running hot. Expectations of a rate hike have increased and the BIS forecast for higher global interest rates is vindicated.
Euro : The Euro is also higher as this Greek vote has been viewed as a done deal for the past two days. While riots in the streets dominate the headlines, cooler heads know that Greece has no choice in the matter. Austerity will happen one way or the other, and it is probably better with additional funding than with none.
Pound : The Pound is mostly higher as rate hike pressures on the BOE may forthcoming in light of global inflation and expectations in the economy. While no one likes austerity, it is necessary to purge the ill-conceived promises of politicians when economic reality tells a different story.
Swissie : There is much needed relief for the franc today as risk appetite has lessened demand for the safe haven currency.
Dollar : The Dollar is weaker as risk appetite is higher across the board. Yesterday’s consumer confidence figures came in worse than expected, and home prices weren’t as bad as expected.
Yen : The Yen is weaker across the board in a classic risk-taking scenario, as Asian stocks were higher overnight.
Markets don’t like uncertainty and unfortunately politicians these days can only make hard choices when situations force them to do their jobs. While Greece in and of itself is not a big deal, it serves as a microcosm of the greater global economy in general.
The bottom line is that people need to be prepared to tighten their belts and I think this is a good thing. Volatility has picked up dramatically as the vote nears conclusion but make no mistake about it this is necessary.
The sooner people get over the truth, the quicker they will begin to rebuild their lives. Greece is just the first step, but hopefully the lessons learned from this crisis will carry over here to the US.
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