MORNING BRIEFING: Merkel versus EU leaders; The clash over Greek aid continues.

[RTFX-Trading]

MORNING BRIEFING: Merkel versus EU leaders; The clash over aid to Greece continues.

What’s new:
Euro zone: Merkel, EU partners continue row over Greek aid.
Euro zone: Greek PM wants support not money.
Euro-zone: Trichet: Any help would have to be a conditional loan.
United States: Economist says china could act on Yuan if US stay quiet.
United States: Lockhart: Fed should not remove “extended period” phrase.
United States: Lockhart: US should not take reserve currency status for granted.
United States: Bullard: “extended period” puts Fed in a box.

Today:


Overnight Rates and Indices:
EURUSD: 1.3569 – 1.3503.
USDCHF: 1.0639 – 1.0575.
GBPUSD: 1.5112 – 1.5007.
EURJPY: 122.62 – 121.75.
USDJPY: 90.38 – 90.06.
DowJones: 10’786 +0.41%
NASDAQ: 2’395 +0.88%
S&P 500: 1’165 +0.51%
Nikkei: 10’774 -0.47%.
Shanghai: 3’053 -0.70%,
Gold: $1’103
Crude Oil: $81.25
 
Comments:

The clash between Germany and its EU partners continued Monday over financial aid to Greece as Chancellor Merkel insists that there is no need to discuss this issue at the EU summit starting Thursday. Merkel is facing fierce opposition to any bailout from Germany. Meanwhile European Commission President Barroso called on Merkel to look past domestic politics and agree on a financial safety net for Greece or risk causing harm to their common currency.

ECB President Trichet also gave his take on the situation, as he told the European Parliament that any help for Greece should take the form of a loan with very stringent conditions, not a subsidized soft loan.

The Federal Reserve’s Lockhart said on Monday, that Greece’s budget crisis should hold lessons for the US government. He said high deficits could risk boosting inflation expectations, forcing policy makers to raise interest rates while economy is still weak. He added that the Greek drama should heighten recognition of the urgent need for a credible path to fiscal sustainability in the US.

Lockhart, who is President of the Federal Reserve of Atlanta but not an FOMC voter this year, cautioned that the Fed should not remove its “extended period” phrase until it started to move towards tightening monetary policy. The pledge has come under scrutiny of late from some Fed policy members.  Kansas City Fed president Thomas Hoenig dissented in the last two meetings as he was not comfortable with the phrase while Bullard, president of the St Louis Fed, that the phrase limits the central bank’s flexibility.

Meanwhile, the Euro held its ground on Tuesday, rebounding from a three-week low on Monday against the Dollar at 1.3463. Traders were buying on dips against the Dollar and Yen, as the price failed to breach key support in the 1.3430 to 1.3440 area, and an overall improvement in risk appetite following gains in the US markets. The euro also edged up to 122.62 against the Yen, early in Asia. However the situation in Europe over Greece is likely to maintain pressure ahead of the EU summit on Thursday.

Good Day.

Emman Xuereb
Trading Desk
RTFX Ltd
Risk Disclaimer