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All eyes on Greece again

All eyes on Greece again

With a Greek deal still unreachable, markets remain skittish. Yesterday saw a series of statements from Merkel and Sarkozy all designed to put pressure on Greece to agree to austerity measures in order to gain the second tranche of aid. While the government has agreed to some of the demands, Greek politicians are still refusing to sign up to austerity measures and the unions are again calling for protest strikes. All of this leaves the euro weaker, GBP/EUR is back at 1.2050.

German factory orders rose by more than expected in December, rising by 1.7% against market expectations of a 1.0% increase. The market is currently looking for industrial production to remain unchanged on the month, but there looks to be some upside risk after the factory orders number. The only caveat is that warmer than usual weather in December (which has swiftly unwound in February) will have lowered utilities output as there would be much weaker demand for heating. We have seen a similar trend in the UK and it would be surprising if Germany was immune. That said, survey data all point to a rally in activity so a 0.4% rise would not be surprising.

In Australia the central bank left the cash rate unchanged at 4.25 per cent at its meeting today. The RBA has made it plain there is a case for cutting rates again if economy weakens “materially”. Also, if the Australian dollar rises significantly further, inflation eases by more than anticipated, or if bank funding pressures intensify (the RBA has recognised that funding costs are now above the levels of mid-2011), another easing is possible. We have pencilled in one more rate cut in May this year, taking the official cash rate to 4 per cent. After that, it looks like the RBA will be on hold for a considerable time – at least until mid 2013.

US weekly chain store sales softened during January. This looks to reflect slowing income growth in the second half of 2011. But with incomes now showing solid increases, there is a chance that consumers are now happier to spend so some increase from the 2.0% annual growth rate seen last week is expected.

With the exceptions of the southern European states the global economy looks to be a little more buoyant (this week at least) – this typically means we see a sell of USD as investors return to riskier markets – as such we see GBP/USD top 1.5800 for the first time in a while.

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