Greece Agreement Awaited as Merkel & Sarkozy Meet
Greece set to dominate as Merkel and Sarkozy meet in Berlin, Greek cabinet reshuffle, Bank of Japan minutes.
Yesterdays change of heart by the IMF to allow Greece to access the next instalment of its aid package for July without the necessary agreements on debt repayments, has seen the pressure on the euro diminish slightly, however peripheral bond yields continue to trade at highly elevated levels with Spanish 10 year yields at eleven year highs and Greece two year yields touching 30%.
Markets will be hoping that todays meeting in Berlin between French President Nicolas Sarkozy and Angela Merkel, the German Chancellor will result in some form of resolution to the turmoil that has engulfed the markets this week.
Given recent experience it is likely that the markets could well be disappointed given that the Germans want some form of private bond holder involvement in a resolution to the crisis and the ECB and France do not. It is more likely that the leaders will attempt to buy more time until next weeks EU summit on 23/24th June, and the 11th July when some form of agreement is expected to be reached on a second bail-out package.
Later this morning Greek Prime Minister Papandreou will seek to restructure his cabinet and then try and then gains support for a confidence vote for the new 78bn austerity budget. The budget needs to pass for the Greeks to gain access to the latest tranche of IMF funds.
In economic data due out later Eurozone trade balance data for April is expected to show a deficit of 1.9bn, down from a surplus in March 2.8bn.
Last night's Bank of Japan minutes showed that some policymakers were in favour of further easing measures due to doubts about the ability of the economy to recover from the effects of the earthquake. In the short term the Bank cited recent improvements in household and business sentiment as evidence of a gradual recovery and elected to adopt a wait and see approach.
With options expiration also due today, markets expect added choppiness in equity markets.
In the US investors will be hoping that University of Michigan confidence data for June comes out better than yesterdays Bloomberg consumer comfort data, which fell to its lowest level for two years.
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