Asia today: Greece is (again) the word; Spain a very close second

There were further damaging press headlines for the Eurozone over the weekend so the EUR started this week off on an even weaker note.

Germany’s Der Spiegel magazine reported that the International Monetary Fund will not provide new funds to Greece in an indication that the Washington-based organisation is losing patience with Greek authorities whom it maintains must reduce Greece’s debt/GDP ratio to 120 percent by 2020. It reckons an extension to this timeline would require some EUR 10-50 bn in additional aid. Representatives from the Troika are scheduled to visit Athens this week for a latest assessment of the new government’s economic programme.

Meanwhile, Germany’s economics minister Philip Roesler reiterated his doubts that Greece could remain in the Eurozone as it struggles to meet Troika requirements and as such, a lack of additional aid may force Greece to conclude that an exit was more favourable than remaining in it. He noted that the “horror” of a Greek exit has diminished. Meanwhile, the leader of Greece's opposition party, Alexis Tsipras has added more fuel to the fire by predicting a Greek default and also forecasting that the present government will soon present a return to the Drachma as a national success.

EURUSD gapped lower at the Asian open this morning, trading down to a 1.2102 low (new 2-year low) before some profit-taking set in. It looked as if we might close the chart gap to 1.2150 (NY close) but the weight of negatives cut the rally short at 1.2133 with equity markets opening in the red across the region and trading lower throughout the session.

In other headlines, Japanese finance minister Azumi reacted as expected to the further slide in USDJPY. Despite reportedly “frank discussions with Prime Minister Noda and the Bank of Japan's Shirakawa, the usual jawboning on “standing ready” to act and “carefully watching” the JPY’s moves were trotted out but largely ignored by the market. The only comments from the BOJ reinforced their commitment to pursue powerful monetary easing until its 1 percent inflation target is in sight, but with steps to boost growth also needed to defeat deflation. USDJPY was stuck at the day’s lows at 78.15 at press time.

On the data front, Australia’s producer prices rose 0.5 percent q/q and 1.1 percent y/y, both slightly above market expectations, with steep discounting at the wholesale level and slower domestic demand helping to offset higher fuel prices and a slightly weaker AUD. The PPI is a lead-up to Wednesday’s CPI release which is expected to firm up to +0.6 percent on a quarter-on-quarter basis but ease back to 1.3 percent from a year ago.

The bad news for the EUR started on Friday. Firstly there was chatter that Germany’s CSU would back a Greek exit from the EUR, secondly rumours circulated that Spain’s Valencia is seeking government aid to repay its debts. In addition, ratings agency Egan Jones downgraded Spanish debt while there were reports the European Central Bank would not accept Greek bonds as collateral from next week. Spanish growth outlook downgrades did not help.

There were no US data releases to help sentiment on Friday so Wall St reacted to the negative vibes from Europe, with the DJIA falling 0.93 percent, S&P 1.01 percent and Nasdaq 1.37 percent.

Data Highlights

• CA Jun. CPI Out at -0.4% m/m, +1.5% y/y vs. -0.2%/1.7% expected and -0.1%/1.2% prior resp.
• CA Jun. Core CPI out at -0.4% m/m, +2.0% y/y vs. -0.1%/2.3% expected and 0.2%/1.8% prior resp.
• AU Q2 PPI out at +0.5% q/q, +1.1% y/y vs. 0.3%/1.0% expected and -0.3%/1.4% prior resp.

Upcoming Economic Calendar Highlights

(All Times GMT)

• JP Supermarket Sales (0500)
• SI CPI (0500)
• Swiss M3 Money Supply (0700)
• US Chicago Fed Activity Index (1230)
• EU Euro-zone Consumer Confidence (1400)

For more information on today’s events, please visit the financial calendar