Monday, May 4, 2015

Constancio confident there will be no Greece exit | Reserve Bank of Oz reduces core interest rates

The Vice-President of the ECB, Vitor Constancio, gave an interview to a Dutch newspaper, which was published yesterday. The central bank thought so much of it that they carried on their website, and you can read the full article here.

While the piece commenced with a discussion of the future of Eurozone Quantitative Easing (QE), which Constancio is confident will be carried to its advertised conclusion, the big takeaway will be his assertion that there is, really, no longer a Greek issue. Not only does he think that there will not be a Greek exit from either the Euro or the EU as a whole, he believes that even if the “worst case scenario” were to come about, the Euro would be able to survive. He says:
“Like everyone else, I am concerned. But I am also absolutely convinced that the worst-case scenario will be avoided. At the same time, everyone acknowledges that the degree of stress and vulnerability in the euro area has totally changed. There are no signs of contagion.”

It has to be said that these sentiments seem to be shared by both the bond markets and the Greek people. While Greek bonds are in severe difficulty, and the country has effectively been removed from that market, the bonds of all other Eurozone states are in a very comfortable place indeed. So no contagion. News reports from Greece itself indicate that opinion polls there are consistent in their findings that, whatever about objections to austerity, a significant majority of the people of Greece is in favour of remaining within the Euro system.

Reserve Bank of Oz reduces core interest rates

The Reserve Bank of Australia finally bit the bullet in the early hours of this morning, GMT time, and announced a reduction in the core interest rate from 2.25% to 2.00%. The chart above shows the, somewhat counterintuitive, rise in the Aussie against the US dollar, after going through the obligatory bout of severe bi-directional volatility in the minutes following the announcement.

This rise would have far more to do with the Forex markets immediate perception of the real strength of the Greenback, rather than any fundamentals that attach to the Aussie. It will also be very interesting to see how the pair behaves in the coming hours and days. Non-farm payrolls in the US on Friday will have a major bearing on the matter.

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