The Summer Story Returns

May 10, 2016

It’s summer (or it was in the UK for about 2.5 days) which means Greece has another pile of bond redemptions and copy editors are desperately looking for any headlines regarding Greece that have not already been used. The box of clichés is empty, but the position Greece finds itself in is all too familiar. Yesterday, there were some signs of softening with regards to the fundamental issue, namely that of debt restructuring. It was on the agenda for the meeting of Eurozone finance ministers, with a sense emerging that Germany was also softening its steadfast objection to any form of debt relief. It’s early days, but it seems this time a more realistic approach may be taken. As a market issue, it’s one of the most tired and beaten stories of the past 6 years, so suffice to say it’s not impacting the euro and is not likely to for the time being, but it’s a story to keep an eye on, especially if a deal is finally done that puts debt on a sustainable path and removes the on-going question regarding Greek membership of the single currency.

The focus in the broader FX market is with the underling dollar sentiment, as we highlighted yesterday. The dollar index has been recovering for the previous 5 sessions, re-entering the lower end of the trading range seen through April. The recovery has been most against the dollar bloc currencies, principally the Aussie. This was initially on the back of the rate cut last week, but the weakness seen in mining stocks has played a part in more recent sessions. Note that the correlation between the Aussie and Materials stocks on the ASX exchange has been rising in the bigger picture, which sits in contrast to the immaterial and sometimes negative correlation (weekly, 3M rolling) on the bigger picture. See here for chart.

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