Lagarde joins Schäuble with hard stance against Greece

Friday, April 17, 2015

Greek officials faced further headwinds in their battle to reach an agreement with eurozone lenders after the head of the IMF, Christine Lagarde, expressed unwillingness to grant a grace period for upcoming loan repayments commenting that precedents were “not followed by very productive results”. The comments mimicked the earlier rhetoric of Germany’s finance minister, Wolfgang Schäuble and immediately sent Greek bond yields higher. Yields on ten year government issued Greek debt rallied above 13% yesterday, touching levels last seen in December 2012, climbing over 100 basis points at one point. The IMF have not granted grace periods for debt repayment in thirty years and further comments by Ms Lagarde hinted at the tough stance eurozone officials are taking against the indebted country.

The euro rallied for a third straight day yesterday, pushing briefly above 1.0800 against the dollar before paring some of the day’s gains to end the session 0.72% up at 1.0761. Steady outflows in the dollar were prompted by generally weaker than expected US macro data released yesterday as initial weekly jobless claims rose 294K during the week ending April 11th against expectations of a 280K increase. The short term weaker outlook for the labour market followed Wednesday’s release of a markedly bearish Empire manufacturing index which fell from 6.9 the previous month to -1.19 in April, significantly below expectations of 7.17. Despite the euro gaining 1.84% against the dollar over the past three sessions we do not view this as any indication of prolonged strength in the single currency as recent data releases suggest the dollar has been unable to take advantage of underlying weakness in the euro.

Earnings on Wall Street were a bright spot for investors after Goldman Sachs and Citigroup both posted one of their strongest quarters since the financial crisis. Goldman Sachs reported its best return on equity in 18 quarters at 14.7% with the highest quarterly profits in four years while Citigroup which has struggled to overcome recent difficulties recorded its highest quarterly profit in seven years. The bullish results brush off concerns that the structural changes since the crisis had damaged the financial sectors ability to remain profitable. However, with the outlook for the global economy slowly improving, albeit with heightened volatility, we could see further gains across financial institutions as risk appetite improves.

10 year Greek government bonds spike above 13% yesterday

GGGB10YR Index Greece Govt Bond 2015 04 17 07 38 45

Initial jobless claims rise after last weeks drop

INJCJC Index US Initial Jobless 2015 04 17 07 52 24

Events for today

0900

EZ

Feb

Current Accounts

0930

UK

Mar

Claimant Count

0930

UK

Mar

ILO Unemployment Rate

1000

EZ

Mar

CPI

1000

US

Mar

CPI

1455

US

Apr

Michigan Survey

OE: 

Feb  FTSE 100 Index & Equity (LIFFE)  

OE:

May Crude WTI (NYMEX) 

Topics: USD, EUR, Unemployment, IMF, Yields
More from: Kash Kamal