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No offer of an olive branch to Greece

No offer of an olive branch to Greece

German Chancellor Angela Merkel braved tens of thousands of angry Greek protesters during her visit to the troubled state’s capital yesterday. Merkel pointedly failed to announce any loosening of the harsh austerity measures which the Greek populace feel have been suffocating them over recent years. In truth, an olive branch was never likely to be forthcoming from the leader of Europe’s leading economy. Any easing of the stringent tax hikes and spending cuts which the Greek people have had to endure would have to be jointly agreed by the EU/IMF/ECB ‘Troika’.

The UK’s trade deficit more than doubled in August, according to the Office for National Statistics. The difference in goods and services imported and exported widened to £4.2bn in August, from £1.7bn in July. The period includes the Olympics in August, which may have affected international travel, tourism and employment. So much for the economy exporting its way to recovery. On a different note, food prices in the UK look set to rise after poor harvests due to the wettest summer since records began. The National Farmers’ Union (NFU) said wheat yields in England were down by almost 15%. The British Retail Consortium said food prices were already being driven up after a rise in grain costs following the worst drought in 50 years in the US and a heatwave in Russia.

Global financial risks have increased, says IMF, urging European policymakers to deepen the financial and fiscal ties within the euro area with some urgency to restore sagging confidence in the global financial system. In its semi-annual check on the world’s financial health, the Fund said the euro area’s debt crisis was the main threat and the risks to global financial stability had risen in the last six months, leaving confidence “very fragile”. It said individual governments needed to cut debt levels without choking off growth and push through reforms to clean up the banking sector, including recapitalising viable banks. Outside the eurozone, the fund pointed to risks in the US and Japan. It highlighted the looming so-called fiscal cliff in the US, while the fund highlighted high budget deficits, record debt levels and “growing interdependence” between banks and the state in Japan.

On the FX market, even though the GBP/USD settled lower, losses were capped by the fact that pair tends to be supported by safe-haven flows given the perceived detachment from the Eurozone. The latest Manufacturing and Industrial Production reports underpinned the view that the economy will likely require stimulative measures. The ONS said that there is evidence to suggest that some businesses had longer summer closures in August or that closures were held later than in previous years. In particular, this affected monthly transport production data. In terms of technical levels, supports are seen at 1.5975/70 and then at 1.5905. On the other hand, resistance levels are seen at 1.6050 point of control and then at 1.6135, last week’s highvolume inflection point. Outlook still negative.

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