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    Euro recovers as investors see bailout deal on the horizon

    EUR

    The euro recovered after a weak start on Thursday, boosted by the prospects of Greece and its creditor institutions nearing a potential middle-ground of agreement.

    The Greeks responded to demands for a new list of reforms and proposals by latest Thursday evening, producing their latest document three hours before the midnight deadline.

    The new list of proposals included many of the reforms which were in the June 28 proposal, which were rejected by the referendum.

    The new document included a strict list of reforms and spending cuts worth 13bn euros. Some reforms were weaker than those sought by creditors, but the cumulative savings amounted to the same.

    The next step for the Greek government is to get the document voted through the Greek parliament (Friday). However, this could be challenging as many of its own members are against the new proposals which they don’t think are sufficiently different from those rejected by the referendum. The current mutiny counts 70 MPs in its number, led by the Energy Minister. However, Tsipras may get the support of the pro-European opposition which will probably be enough to get it through – nevertheless he risks being made unpopular due to the continued austerity held in the new proposals.

    Even with a vote of confidence it will still not mean a done deal, merely that Tsipras and his negotiation team have a mandate to use the document as a negotiating tool – he still needs to actually strike a deal with the Troika, which is nevertheless expected over the weekend.

    The Greeks are still also asking for debt relief – something the German’s headed by Chancellor Merkel are dead against, and this could prove another major sticking point, as neither is likely to want to back down and the Greeks will almost certainly not accept more austerity without the ‘carrot’ of relief.

    Apart from the developments on the Greek front the main news out of the euro-zone on Thursday was the German Trade Balance, which showed a slight fall in the surplus to 19.5bn, from 21.8bn when it had been forecast to come out at 20.5bn.

    USD

    The dollar ended the day higher on Thursday after a recovery in the Chinese stock market diffused concerns a collapse in the world’s second economy could triggering a global financial crisis, severely limiting the Fed’s policy tightening agenda.

    The recent Fed June meeting minutes had highlighted policy-maker concerns about the impact of global financial risk factors including Greece and China, and both these risky hot-spots appeared to have improved on Thursday lending the dollar support.

    In China the government’s efforts to halt the steep decline in stocks caused by over-leveraged margin traders having to liquidate their rapidly depreciating shares, seemed to have stemmed the haemorrhaging temporarily, with Thursday recording the biggest rally in a 6-years.

    Authorities in Beijing have stepped in with a variety of measures, including actually buying small cap shares itself, and banning most types of short-selling.

    On the data front, Initial Jobless Claims, unexpectedly rose to 297k from 282k previously when it was actually forecast to to fall to 275k instead. Continuing Claims, also rose to 2334k from 2265k previously, when a fall to 2250k had been estimated.

    Today’s data includes commentary from Fed Chair Janet Yellen and Wholesale Inventories, which are expected to show a 0.3% rise in May.

    GBP

    The pound strengthened on Thursday after a combination of a higher-than-expected
    house price data from the Royal Institute of Chartered Surveyors (RICS) and no change in policy from the BOE.

    The RICS survey showed a balance of 40% in June, from a starting amount of 34% when a lesser rise to 36% had been forecast. These amounted to the biggest house price rise in a year – a fact which could enhance expectations of the BOE bringing forward rate hike expectations. However, the head of the institute said that the rise was likely to make property even more unaffordable as prices and rents were likely to outpace wages.

    The lack of affordable housing supply in the U.K could eventually have a negative impact on people’s ability to move around to find work and therefore the economy. The data from RICS was also supported by data from Halifax which also showed house prices rising faster than expectations.

    The other main news was from the BOE which kept rates unchanged and the Asset Purchase Programme at 375bn, including the continued reinvestment of principle.

    JPY

    The yen weakened 60 points today versus the dollar as safe haven trading eased.

    The BOJ could expand its monetary stimulus to combat any surge in the Japanese yen triggered by the Greek crisis, Koichi Hamada economic adviser to Prime Minister Abe said. However he emphasised any fallout from Europe would be limited. Moreover Hamada even expected the nation’s currency to weaken further on the back of the Fed. moving closer to normalize its monetary policy.

    At the same time earlier today the IMF cut its GDP forecast for Japan to 0.8% from 1.0%.The consensus is 1.0% as of a BBG survey earlier today, and the BOJ’s 2015 forecast is 2.0%. A series of better economic data points has stalled and that brings the idea of yet another round of QE onto the table. Economists are looking for solid growth in the second half of the year to keep Kuroda sidelined.

    Japanese Core Machinery Orders rose 0.6% in May on a seasonally adjusted basis from a month earlier, a sign that domestic firms may be increasing capital spending.

    The BOJ’s latest quarterly ‘tankan’ survey indicated that large companies plan to increase capex by 9.3% in the 12 months ending in March 2016, a considerable change from the 1.2% cut they planned for the year in the previous survey.

    EUR

    The euro recovered after a weak start on Thursday, boosted by the prospects of Greece and its creditor institutions nearing a potential middle-ground of agreement.

    The Greeks responded to demands for a new list of reforms and proposals by latest Thursday evening, producing their latest document three hours before the midnight deadline.

    The new list of proposals included many of the reforms which were in the June 28 proposal, which were rejected by the referendum.

    The new document included a strict list of reforms and spending cuts worth 13bn euros. Some reforms were weaker than those sought by creditors, but the cumulative savings amounted to the same.

    The next step for the Greek government is to get the document voted through the Greek parliament (Friday). However, this could be challenging as many of its own members are against the new proposals which they don’t think are sufficiently different from those rejected by the referendum. The current mutiny counts 70 MPs in its number, led by the Energy Minister. However, Tsipras may get the support of the pro-European opposition which will probably be enough to get it through – nevertheless he risks being made unpopular due to the continued austerity held in the new proposals.

    Even with a vote of confidence it will still not mean a done deal, merely that Tsipras and his negotiation team have a mandate to use the document as a negotiating tool – he still needs to actually strike a deal with the Troika, which is nevertheless expected over the weekend.

    The Greeks are still also asking for debt relief – something the German’s headed by Chancellor Merkel are dead against, and this could prove another major sticking point, as neither is likely to want to back down and the Greeks will almost certainly not accept more austerity without the ‘carrot’ of relief.

    Apart from the developments on the Greek front the main news out of the euro-zone on Thursday was the German Trade Balance, which showed a slight fall in the surplus to 19.5bn, from 21.8bn when it had been forecast to come out at 20.5bn.

    USD

    The dollar ended the day higher on Thursday after a recovery in the Chinese stock market diffused concerns a collapse in the world’s second economy could triggering a global financial crisis, severely limiting the Fed’s policy tightening agenda.

    The recent Fed June meeting minutes had highlighted policy-maker concerns about the impact of global financial risk factors including Greece and China, and both these risky hot-spots appeared to have improved on Thursday lending the dollar support.

    In China the government’s efforts to halt the steep decline in stocks caused by over-leveraged margin traders having to liquidate their rapidly depreciating shares, seemed to have stemmed the haemorrhaging temporarily, with Thursday recording the biggest rally in a 6-years.

    Authorities in Beijing have stepped in with a variety of measures, including actually buying small cap shares itself, and banning most types of short-selling.

    On the data front, Initial Jobless Claims, unexpectedly rose to 297k from 282k previously when it was actually forecast to to fall to 275k instead. Continuing Claims, also rose to 2334k from 2265k previously, when a fall to 2250k had been estimated.

    Today’s data includes commentary from Fed Chair Janet Yellen and Wholesale Inventories, which are expected to show a 0.3% rise in May.

    GBP

    The pound strengthened on Thursday after a combination of a higher-than-expected
    house price data from the Royal Institute of Chartered Surveyors (RICS) and no change in policy from the BOE.

    The RICS survey showed a balance of 40% in June, from a starting amount of 34% when a lesser rise to 36% had been forecast. These amounted to the biggest house price rise in a year – a fact which could enhance expectations of the BOE bringing forward rate hike expectations. However, the head of the institute said that the rise was likely to make property even more unaffordable as prices and rents were likely to outpace wages.

    The lack of affordable housing supply in the U.K could eventually have a negative impact on people’s ability to move around to find work and therefore the economy. The data from RICS was also supported by data from Halifax which also showed house prices rising faster than expectations.

    The other main news was from the BOE which kept rates unchanged and the Asset Purchase Programme at 375bn, including the continued reinvestment of principle.

    JPY

    The yen weakened 60 points today versus the dollar as safe haven trading eased.

    The BOJ could expand its monetary stimulus to combat any surge in the Japanese yen triggered by the Greek crisis, Koichi Hamada economic adviser to Prime Minister Abe said. However he emphasised any fallout from Europe would be limited. Moreover Hamada even expected the nation’s currency to weaken further on the back of the Fed. moving closer to normalize its monetary policy.

    At the same time earlier today the IMF cut its GDP forecast for Japan to 0.8% from 1.0%.The consensus is 1.0% as of a BBG survey earlier today, and the BOJ’s 2015 forecast is 2.0%. A series of better economic data points has stalled and that brings the idea of yet another round of QE onto the table. Economists are looking for solid growth in the second half of the year to keep Kuroda sidelined.

    Japanese Core Machinery Orders rose 0.6% in May on a seasonally adjusted basis from a month earlier, a sign that domestic firms may be increasing capital spending.

    The BOJ’s latest quarterly ‘tankan’ survey indicated that large companies plan to increase capex by 9.3% in the 12 months ending in March 2016, a considerable change from the 1.2% cut they planned for the year in the previous survey.


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