Failures in Greece

That very poor nation called Greece
Continues to shrink, to decrease
Their state asset sales
Have largely been fails
Perhaps they can offer a lease!

Markets are rebounding this morning from yesterday’s poor performance with a bit less fear in the air.  Of course, this only means that market volatility continues to rise overall.  The dollar has fallen against most currencies this morning, led by AUD and NZD, which have recouped yesterday’s losses.  Although why that is the case remains unclear.

In the G3 space, the euro is little changed this morning despite the twin Greek blows of the MSCI dropping the Greek stock market from developed to emerging market status, and the failure of Greece to garner any bids for Depa SA, its national gas monopoly, as part of its asset sale program.  But the FX markets seem to be able to ignore the Greeks for now, or at least drew solace from the fact that IP in the Eurozone overall rose an unexpected 0.4% in May, much better than the expected flat reading.  With equity markets rebounding and bond markets not actually declining this morning, that seems to be enough to encourage euro holders to stand pat.

In the UK we saw a better than expected employment report, with employment rising by 24K, but no change in the Unemployment rate, still at 7.8%.  However, the body of evidence from England continues to show improvement in the economy and the pound continues to benefit, up another 0.5% this morning to 1.5650 or so.  If you recall, this is the level I expected to reach, but am not looking for any further appreciation of note.  I guess the accuracy of that forecast will be determined shortly.

The yen continues to strengthen moderately vs. yesterday’s close, although compared to where it was when I wrote yesterday morning, it is actually a bit weaker.  There was virtually no news from Japan overnight, and the Nikkei, while closing slightly lower, showed less overall volatility than we have been seeing lately.  With no comments from any talking heads, the market has been left to its own devices, which for now means no significant movements.

In the US, we have another marginal data day, with just the Monthly Budget statement (exp -$136.5 Billion) which is rarely, if ever, an FX market mover.  More importantly, the Treasury auctions $21 billion in 10yr notes today (and $13 billion in 30 yrs tomorrow).  The results of this are likely to have the biggest impact on the FX world, but they won’t be known until early this afternoon.  As such, my gut tells me that the FX market is likely to be fairly dull this morning at least.  The caveat here is if we get some comments from Fed or other central bank members.

Right now, all eyes are on the Fed as market participants try to discern whether there will be a change in policy very soon, or just sometime during the rest of the year.  I maintain that no matter how much discussion there is, when the Fed does actually move, volatility will increase, treasuries will sell off sharply and equities will probably sell off aggressively as well.  Is that a story for today?  Almost certainly not.  But it is the background noise that won’t go away, kind of like the Cicada invasion that continues to hum in the background of everyone in the Northeast right now.

Good luck
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