What will be attracting attention this week ..... Greece (of course) and the Fed

Monday 15th June 2015

 

What will be attracting attention this week ..... Greece (of course) and the Fed

 

"Grexit looms after debt talks collapse" , The Times p.37

  and

"Fed interest rate decision keenly awaited" , The Financial Times, p.28

In what is likely to be an interrupted week for the blog, two topics in particular that all should be keeping an eye on :

Greece

Those waiting for the outcome of talks between Greece's deputy PM Dragsakis, chief negotiator Tsakalotos and Eurozone officials last night didn't actually have to wait too long ..... just 45 minutes, in fact. That was how long it took for Eurozone officials to deem Athens' latest proposal inadequate. Bearing in mind that the IMF withdrew from negotiations last week, it would be fair to say things are not going well.

The main (but not only) bone of contention centres around the level of fiscal measures Athens is prepared to implement, chiefly pension cuts and VAT increases designed to engineer primary budget surpluses. As it stands, the creditors will not release 7.2bn euros in further aid unless Greece agrees to the measures, which Athens views as punitive, likely to be devastating to the economy and wholly contrary to the leftist ethos of the ruling Syriza party and the agenda upon which it was elected.

Eurozone finance ministers are meeting on Thursday, theoretically to sign off on a deal which of course means that an agreement must be found ahead of the meeting ..... not a likely course of events given the rhetoric emanating from both sides. Default, and an end to the ECB providing liquidity to Greece's banking system which would cause a run on the banks and therefore capital controls, looms ever closer. An exit from the Euro ..... it's a probable though not definite consequence that Greek officials say would be a preferable price to pay rather than continued "humiliation".

The Fed

The Federal Reserve's Open Market Committee (FOMC) meets on Wednesday and will announce its decision on US interest rates. Recently, more bullish data from the States after a weak first quarter has encouraged speculation on the timing of a rate rise, but not even the hawks expect a change this early . Confirmation of upward trends will be required and September is viewed as a much likelier date for those urging Fed action. But even if Fed chairwoman Yellen has no rate change to announce, her words will be minutely scrutinized for hints on future policy and the Fed's thinking.

Essentially, the debate continues between hawks who are concerned about the long-term inflationary risks if near-zero interest rates are prolonged too far, and doves who would urge the Fed to stay their hand until wage growth and inflation are demonstably higher. And on that note, look out for US inflation numbers on Thursday : Consumer Price Index for May expected flat year-on-year (last -0.2%), core CPI (excluding food and energy) expected 1.7% (from 1.8%).