Daily Market Digest: Greece gets 10.3bn euro, German Ifo sentiment improves

May 25 2016, 2:05 pm

Creditors approve 10.3 billion euros in the bailout package for Greece. German Ifo sentiment points to increasing business optimism, and markets await BoC rate decision.

Today’s Economic events

  • Australia construction work done q/q -2.60% vs. -1.40%
  • Switzerland UBS Consumption indicator 1.47 vs. 1.40 previously
  • Gfk German consumer climate 9.8 vs. 9.7
  • German Ifo business climate 107.7 vs. 106.9
  • Switzerland economic expectations 17.5 vs. 11.5 previously

Coming up

  • US HPI
  • US flash services PMI
  • BoC rate statement
  • Crude Oil inventories

New Zealand posts a trade surplus in April

In the overnight trading session, New Zealand trade balance data released showed the merchandise trade surplus rising NZ$292 million, up from NZ$117 million in March. The trade surplus gained with exports rising NZ$116 million or about 4 percent on a year over year basis to NZ$4.3 billion. The dairy sector which includes milk powder, butter, and cheese, fell 6.70% to NZ$818 million. Imports to New Zealand increased 1.50% to an annualized NZ$58 million with an increase in consumption goods.

China was the country’s top trade partner in both exports and imports, followed by Australia.

ANZ Bank’s senior economist Philip Borkin was, however, skeptical on the data, saying that “Dairy prices look like they have found a floor at the moment, but when we look across the non-dairy components there is still some modest falls occurring in the likes of land prices and a few other components as well.” He said that the deficit could worsen as export prices continue to fall against a resilient New Zealand dollar.

German Ifo business sentiment improves in May

Greece’s creditors approved to release bailout funds worth 10.3 billion euro as part of its debt-restructuring deal. The funds are expected to be released in June of which more than 70% will be used to servicing the debt of the country while the remainder will be used towards clearing up arrears. The decision to release the bailout funds came after Greece passed austerity measures on Sunday which included cutting pension benefits and raising VAT and abolishing VAT discounts to some of the nation’s islands. The bill was passed amid strong opposition.

The IMF, which was hitherto advocating that Greece needed a debt relief, eased its stance as it got promises from Germany and other Eurozone nations that the situation would be reviewed in 2018. The current tranche of funds is part of a three-year review (2015 – 2018). Many believe that the recent austerity measures passed by Greece will tilt the economy deeper into recession.

Eurogroup President Jeroen Dijsselbloem said, “We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme.” Paul Thomsen, the director of the IMF’s European department said “We had argued that these debt-relief measures should be approved up front and we have agreed that they will be approved at the end of the program. The IMF has made a major concession.

Greece gets 10.3 billion euro in bailout funds

The UK’s public sector net borrowing narrowed to 0.3 billion GBP in April, compared to 7.2 billion last year, data from the UK’s Office for National Statistics showed today. However, April’s deficit was less than the forecasts of 6.4 billion. By the end of April, UK’s public sector net debt excluding public sector banks was equal to 83.3% of the economy’s GDP. For the period of 2015/2016 fiscal year, the public sector borrowing was revised higher. For the fiscal year ending April, UK’s borrowing excluding public sector banks fell 15.70%

The Bank of England officials were also testifying to the UK’s Treasury Select committee. In the meeting, BoE Governor Carney said that the outcome on whether to stay or leave the EU had unusually impacted the exchange rate. In his testimony, Carney said, “The effect on sterling is unusually identifiable and related to the referendum.” Other BoE members weighed in as well with Broadbent saying “Brexit would leave to a period of lower growth” while Vlieghe said that “Brexit likely to cause material slowing in growth and would increase the risk of recession.”

Bank of Canada – Interest Rate decision

The Bank of Canada will be meeting later today to review the monetary policy. No changes are expected to the benchmark interest rate today which will keep the Canadian interest rates at 0.50%. However given the recent wildfires in Alberta, economists point to slower GDP growth in the coming months. Economic data until now has been largely neutral with inflation staying close to the BoC’s target rate. However, GDP continues to decline after starting the year strongly. Despite leaving rates unchanged, the Bank of Canada could remain dovish due to the above factors.

Robert Kavcic from BMO Capital notes, “With this run of weaker data – especially the closely watched trade figures – the BoC can more comfortably play up the cautious notes.”

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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