Market Review – 23/06/2011 21:33 GMT
Euro rebounds as Greece reached agreement with EU and IMF on austerity plan
Euro pared intra-day losses on Thursday after source indicated that Greece has reached agreement with European Union-International Monetary Fund inspectors on five-year austerity plan.
The single currency initially extended fall from Wednesday’s New York high of 1.4442 to as low as 1.4287 in Asian morning. Later, the release of weaker-than-expected Eurozone manufacturing and services PMI in June (which came in at 52.0 and 54.2 versus the economists’ forecast of 53.8 and 55.5 respectively) pressured price again at European opening and then tumbled to session low of 1.4126 in New York morning on concerns over two-day meeting of European Union leaders which would seek ways to avoid the euro area’s first sovereign default before recovering in New York afternoon as Greece was reported to reach agreement on Austerity and price rebounded to about 1.4260 near New York closing.
Greek government spokesman Elias Mossialos confirmed talks concluded with European Union-International Monetary Fund inspectors on austerity plans and said ‘I have just talked to the minister of finance, who reported that discussions between the government and the Troika (European Commission, European Central Bank and International Monetary Fund) have been completed and we are moving to the adoption by Parliament next week of the mid-term targets and the first implementation law’.
In euro crosses, the single currency tumbled against the Japanese yen and Swiss franc. Eur/jpy and eur/chf fell from session highs of 115.42 and 1.2070 to as low as 113.85 and a fresh lifetime low of 1.1847 respectively before rebounding to about 114.75 and 1.1950 near New York closing on Greek austerity agreement.
Earlier in the day, the US dollar strengthened broadly on Thursday on weakened U.S. economic outlook and persistent concern over Greek debt crisis prompted investors to increase holding of safe-haven assets. The dollar index, which tracks the greenback against six other major currencies, rose to session high of 75.80. Aud/usd tumbled from session high of 1.0571 to 1.0455 whilst usd/jpy and usd/cad rose sharply from 80.29 and 0.9714 to 80.80 and 0.9825 respectively.
Sterling also ratcheted lower on Thursday on US dollar’s broad-based strength and cable penetrated 1.6000 level for the first time since April 1 on expectation that the Bank of England would hold interest rates steady increased after U.K. reported CBI retail sales balance dropped to the weakest in a year (-2 in June versus the economists’ forecast of +10 and previous reading of +18 in May), price reached a session low of 1.5938 in New York morning before recovering.
Commodity prices also fell sharply as spot gold and silver prices retreated from $1,548.80/oz and $36.33/oz to $1,513.50/oz and $34.73/oz respectively.
European and U.S. stock markets were pressured by broad-based risk aversion. Britain’s FTSE 100, France’s CAC-40 and Germany’s DAX fell by 1.71%, 2.16% and 1.77% respectively. Dow Jones Industrial Average once dropped by more than 200 points and eventually closed the day at 12,050, down by 59.67 points or 0.49%.
In other news, Greek opposition leader Antonis Samaras said ‘government policies must be corrected; only change in policies will enable Greece to repay its debt’. Eurogroup Chairman Jean-Claude Juncker said ‘we’ll talk today about a second package for Greece; all conditions must be met by Greece, there is no plan B.’
On the data front, German manufacturing and services PMI in June came in at 54.9 and 58.3 versus the economists’ forecast of 57.0 and 55.7 respectively. U.S. jobless claims came in at 429,000 versus economists’ forecast of 415,000.
Data to be released on Friday include:
EU Ifo business climate and Ifo current accessment; U.S. durable goods, GDP annualised, GDP deflator and PCE core on Friday.