Diminished

There is a small nation called Greece
Which eight years ago had to cease
Expending their cash
Which led to a crash
And caused GDP to decrease

Today is important due to
The fact that austerity’s through
The bailout is finished
Though Greece is diminished
While people there barely make do

Even though all eyes are on emerging markets these days, and rightly so in many cases, I thought it was worthwhile to note that the Greek sovereign debt crisis is ‘officially’ over as of today. While the situation in Greece doesn’t seem to have improved that much overall, today is the day that the bailouts officially end and Greece returns to the group of nations that are fully independent-ish. In fact, the Troika still controls much of what Greece is allowed to do with respect to spending priorities and budget discipline, and the nation remains a basket case in most ways. But reality on the ground could never dissuade the Troika from touting that their programs were a huge success and that everybody will live happily ever after. At any rate, it is probably a good thing that this chapter in Europe’s history has finally closed, but I would wager that if you surveyed the Greek people, not many would find good things to say about the future, let alone the past. In the end, though, Greece remains a tiny nation within the Eurozone, and what happens there impacts markets through sentiment changes, not through financial ones.

At the same time, there is a much bigger problem brewing in Italy, with many of the same issues surfacing there as occurred in Greece, and fears that the recently elected, anti-establishment government may make decisions inconsistent with the EU’s wishes. But Italy is not a small country. It is the third largest in the Eurozone and carries the largest amount of debt, €2.3 trillion worth. The one thing of which I am confident is that we have not seen the last problems to emanate from the Eurozone, and correspondingly, with the euro itself.

Reverting to emerging markets, while everyone recognizes the wreck that is Venezuela, on Friday night they made some major adjustments to their currency regime, devaluing the official bolivar by 95% (now approaching the black market rate) and redenominating the currency by removing 5 zeroes from its value. But in the end, the currency is just a symptom of their problems, not the cause, and it will remain the basket case that it has become over the past twenty years until there is a new government in place.

Moving on to more frequently discussed EMG currencies, like TRY (-2.2%), INR (+0.3%) and RUB (-0.2%), things are far less interesting. Remarkably, a 2% decline in the Turkish lira seems like a good day after recent gyrations, and the rest of the FX world seems to be on vacation, with very little substantive movement overnight. As we are coming to the end of August, it should be no real surprise that markets are getting quiet as there are more and more traders on holiday, and unless there is a specific story on which to trade, those that are manning the desks seem likely to play things close to the vest.

Meanwhile, there was virtually no data of note released overnight, and no commentary from any officials. The US-China trade situation seems like it might be moving toward a better place, with ongoing negotiations designed to arrive at an outcome in November, but there is still a long time to go before anything truly positive arrives. And in the meantime, Thursday we are due to see new tariffs imposed on $16 billion more of Chinese goods. Otherwise, there’s just not that much happening.

And the calendar this week is underwhelming as well, although the KC Fed’s Jackson Hole Symposium does kick off on Friday with Chairman Powell starting the festivities Friday morning.

Wednesday Existing Home Sales 5.4M
  FOMC Minutes  
Thursday Initial Claims 215K
  New Home Sales 645K
Friday Durable Goods -0.5%
  -ex Transport 0.5%

So the reality is that Wednesday’s FOMC Minutes will be carefully scrutinized for any sign that there is growing concern over the trade issue, and then Friday’s Powell speech is the next thing that will really matter. My sense is that we are looking forward to a very quiet week, with modest gyrations in the dollar, but no trend extension likely.

Good luck
Adf