Greece received a sigh of relief following the Troika recommendation last Friday, which paved the way for the country to receive its fifth tranche of bailout funds. However, economic and political challenges facing the country are by no means over, not least given that the Greek opposition party is still against austerity measures, and last week saw several dissident voices within the ruling party itself. Looking forwards the Greek 2011-15 fiscal and privatisation plan is due to be brought to Parliament later this month, as well as the European Summit on June 24th, which is expected to forge a new EU/IMF bailout package for Athens.
Elsewhere in the Eurozone, Portugal held its general election yesterday, where most analysts expect the centre-right Social Democrats to gain the upper hand over caretaker PM Socrates’ party. However, it is also expected that the Social Democrats won’t be able to form a government on their own, and will have to rely on the support of the smaller CDS Party, which may well bring about further political uncertainty. Hence, despite gaining ground last week, the troubles for the euro-area are far from over. Meanwhile it appears that at present political uncertainty is not just the privilege of Eurozone countries as Japan is currently going through a similar phase. The handling of events that unfolded following the March 11th earthquake and tsunami, allied with the nuclear crisis in Japan, has seen Naoto Kan’s troubles accumulate prompting pressure from within his own party to depart as soon as possible. With no clarity over the form or shape of the next government, and an ever growing debt burden the developments may prompt rating agencies to take further actions on the country and in turn may exert pressure on the JPY.
Looking elsewhere the US is tending to its own economic woes with the latest nonfarm payrolls data. Friday’s report showed that the US economy added a meagre 54K jobs in the month of May, much lower than analysts’ expectations, many of who had already cut their forecasts following the release of the ADP employment figures. On top of that politicians in Washington are still debating over raising the US debt ceiling, which has prompted Moody’s to warn over a potential sovereign outlook downgrade in the next few weeks if the indecision continues.
In terms of weekly events, markets will keep a close eye on the ECB and BoE rate decisions, where consensus sees no change at 1.25% and 0.5% respectively. However, market participants will watch keenly the ECB press-conference where Trichet is expected to provide clues for a July rate hike. If that is the case, then the EUR may see gains across the board, and Bunds and Euribor futures may come under pressure. Elsewhere, OPEC is scheduled to have its monthly meeting this week, where indications are for an increase in production, which allied with global economic uncertainty may weigh upon WTI and Brent crude futures. However, weakness in the USD-Index and on-going geopolitical tension in the MENA region are net positives for the crude market and may negate any heavy selling. Finally, the Reserve Bank of Australia also holds its rate decision meeting this week where consensus estimate is for no change, nonetheless it will be a key risk-event for the AUD.