Greeks Fight to Stave Off a Default Ahead of Steep Repayments
With deposits in Greek banks being pulled at escape velocity and reaching levels not seen since February, the Greek Government is desperately negotiating for the release of further bailout funds to prop up the beleaguered economy. Repayments due to the IMF later today are likely to create a further cash crunch with the Government forced to borrow money from state utility companies in order not to default on existing obligations. With the nation unable to finance itself via debt markets, without another tranche from the Troika, the nation’s days are numbered. After rising nearly 400 pips following the FOMC Statement, EURUSD has since retraced all of the gains as the reality of Greece sets back in. Without any definitive compromise between Greece and creditors, EURUSD is likely to test key support at 1.0500 once more.
Across the Atlantic, macroeconomic data continues to largely disappoint expectations with manufacturing especially weak. Yesterday’s Philadelphia Fed Manufacturing Index missed expectations by a wide margin, printing at the weakest levels in over a year as concerns about the outlook remain pervasive. With the Federal Reserve planning to stay "data dependent” when considering hiking interest rates, economic figures remain unsupportive of higher rates. According to the manufacturing index, the employment, new orders, and expenditures elements are foreshadowing further fragility in the sector which is likely to weigh heavily on the Fed’s decision. While the dollar has managed to rebound from the lows seen after the most recent Federal Reserve meeting, equities remain mostly unchanged after soaring higher following the statement.
The Japanese economy continues to face serious obstacles to growth as evidenced by the latest revelations by the Bank of Japan. The impressive and unprecedented monetary easing program is continuing to reduce liquidity conditions in key asset classes as the Bank of Japan buying spree is running out of available assets to purchase under its current mandate. According to current projections, the BoJ is forecast to run out of available ETFs and REITs to purchase and might have to resort to buying individual equities on the open market to continue the current pace of monetary easing. This is increasing the risks to the broader economy as the Central Bank begins to absorb substantial quantities of financial assets as the bidder of last resort.
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