After the excitement of yesterday’s developments in Greece, European markets look to open lower on Friday. There is the small bridge to cross of parliamentary approval in Germany before Greece is home and dry with financing to make its near-term debt payments and its new bailout plan.
The Bundestag vote on Friday is expected to pass easily despite the gritty determination from finance minister Wolfgang Schauble to keep his suggestion of a five-year timeout on the table. There is a cold logic to Schauble’s call for a timeout; the Greek government, the IMF and now the ECB are all calling for large debt relief, something theoretically incompatible with membership rules within the Eurozone.
The final bailout agreement and the way it was reached has probably raised more questions than it’s solved for the long-term future of Europe. In the short-term though, with Greece fixed, or at least plastered over, market attention is shifting back to the central bank outlook and corporate earnings.
The Nasdaq Composite flew to a new record on Thursday, buoyed on by strong quarterly earnings results from eBay and Netflix (NASDAQ:NFLX). Google (NASDAQ:GOOGL) beat expectations overnight which should help momentum follow through to Friday. Encouragement over earnings where expectations had been relatively low compared with previous quarters is helping investors look past Federal Reserve Chair Janet Yellen’s call for a 2015 rate hike.
Rhetoric from Bank of England governor Carney has been remarkably similar to that of the Fed’s Yellen, calling for a rate rise at “the turn of this year” which should see rates rise in two years to half their historical levels or around 2%. Both the UK and US are hinting at rate hikes but the Euroland is still going the other way with the “full implementation” of QE. For that reason, it’s not hard to see why the euro-pound exchange rate has fallen to new seven year lows despite a resolution for Greece.
Euro area construction output is released on Friday with more market-moving data reported after the open in New York data including US CPI for June and consumer confidence data for July from the University of Michigan.
EURUSD – The euro decisively broke below 1.09 on Thursday. In the choppy range bound conditions there is scope for a rebound to 1.10 but a re-test of 1.08 support would be consistent with current downwards momentum.
GBPUSD – The pound fell on Thursday but came off its lows to close above 1.56, indicating some strength that could carry it as far as 1.58.
EURGBP – The euro-sterling cross extended its breakout, closing below the June 29 low. A weekly close below 0.70 would be more confirmation a downtrend is beginning.
USDJPY – The dollar-yen closed above 124 on Thursday, falling just short of the 1.2440 from the June 24 high. The trend has turned to the upside but after gaining in 5 of the last 6 days, the pair looks overextended.
Equity market calls
FTSE100 is expected to open 15 points lower at 6,781
DAX is expected to open 3 points lower at 11,713
CAC40 is expected to open 7 points lower at 5,114
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