Whether it was a delayed reaction to yesterday’s uncertain political situation in Greece, or the continued deterioration in crude prices, growth-correlated assets have faltered this morning, as global equities halt their holiday season melt-up. Not helping market sentiment was the fact that USDJPY seemed to have hit an air pocket which caused the pair to tumble into the low 119s before managing to find a bid tone, with the collapse dragging the Nikkei lower by 1.57% as the Asian trading session came to a close.
Turning our attention to Greece and the Eurozone, the situation for the ECB and any potential monetary policy accommodation to head off a liquidity crunch just became a bit more complicated. After the failed Greek presidential vote yesterday, the IMF announced they would be suspending financial aid to Greece under its rescue program until a new government can be formed. This will new wrinkle will likely constrain Draghi and the ECB from instituting a sovereign bond purchase program that includes Greek debt until after the government situation is sorted out and the new ruling party has sufficiently pleased the troika of creditors so the IMF will resume the cheque writing, as it seems unlikely the ECB would be comfortable monetizing Greek debt without certainty they will be getting paid back. Therefore, while it is possible a sovereign bond purchase program could be cobbled together that excludes Greek debt; at this point we think the more likely scenario is a delay of the program into the second quarter of 2015, a little past current market expectations.
On the economic data front, today’s releases out of the Eurozone were optimistic, with both lending and money supply data coming in better than economists had expected. Money supply for the month of November came in with a 3.1% print on an annualized basis, besting the consensus of 2.6% growth, along with increasing from the 2.5% registered in October. Private loan growth is also seeing some positive signs, with the speed of its deterioration decreasing to just -0.9% y/o/y, from the -1.1% seen in October. While the improvement in private loan growth is in the right direction, the pace continues to be sluggish and has not yet shown enough improvement for the ECB to determine further monetary policy accommodation will not be required. The Euro has not seen any significant buying interest in the wake of today’s releases, with EURUSD essentially flat from yesterday’s close in the mid-1.21s.
As we get set for the North American open, equity futures are witnessing a red shade to their tape, while the downdraft for oil prices continues as the front-month contract of WTI slides into the low-53s. Other than the roughly 1% strengthening in the Yen against the greenback, the rest of the currency market has been relatively stable, even with the NOK, RUB, and CAD all putting in slight gains against the USD despite the softness seen in crude. The economic docket is once again fairly light during the North American session, though we will be seeing Consumer Confidence  numbers for the month of December hitting the wires at 10:00EST. Expectations are to see a decent bump in confidence from the November survey, with the flow-through effects of cheaper energy prices giving consumers greater confidence about their future finances.
Further reading:
EURUSD
Spanish CPI plunges 1.1% in December – outright deflation in the euro-zone?
