Greece Takes a Step Ahead

Risk appetite was well supported yesterday after Greece presented a plan to buy back its bond at a slight premium, boosting chances of the nation successfully crossing the final hurdle to receive the next aid tranche. Additionally, in an attempt to bring the Spanish banking sector back to its feet, Spain formally requested the disbursement of funds from the European rescue fund. Across the Atlantic, the White House rejected a proposal by Republicans to tackle the nation’s fiscal issues. With both sides placing their plans on table, it remains to be seen which party blinks first. In the UK, data just out has revealed that the construction sector unexpectedly contracted for November.

Pound Sterling – UK Markets

Sterling showed some resilience against its peers, esecially against the greenback in yesterday’s session, after the latest PMI reading showed that the UK’s manufacturing sector is gradually recovering. However, the Pound is trading in a tight range against both the Euro and the US Dollar this morning. Data just out has revealed that the UK construction sector unexpectedly contracted for November. With latest figures showing consumer confidence in the UK soaring to multi year highs, the retail sector continues to reap benefits from the changing dynamics. BRC revealed that the domestic retail sales edged up in November, albeit at a slower than expected pace ahead of the Christmas period. Although credit off take in the UK’s financial system is showing steady growth, the latest data from the BoE indicated that the Funding for Lending Scheme got off to a slow start, with only six financial firms tapping the funds in its first two months of operation. With a light economic calendar today, we believe that the UK Chancellor’s Autumn statement tomorrow and the BoE’s policy meeting on Thursday will remain the key drivers for Sterling during this week.

US Dollar – US Markets

The US Dollar nudged lower against its peers in yesterday’s session after Athens announced better than expected terms for its proposed bond buyback plan, boosting chances that the nation would succeed in securing fresh aid funds. Meanwhile, the ISM manufacturing index in the US slipped back into contraction territory, as apprehensions surrounding the “fiscal cliff” and delay in shipments owing to the Hurricane Sandy weighed on the manufacturing sector. In order to reach a consensus over the current stalemate on issue of extending the fiscal stimulus, the Republicans proposed a set of plans for lowering the US budget deficit. However, the White House dismissed the proposals, as the proposed plan did not meet the US President Barack Obama’s demand for increasing taxes on wealthy Americans. With the ISM manufacturing index for the New York region being the only major economic indicator due for today’s session, all eyes will focus on the news flow surrounding developments on the “fiscal cliff” and the meeting between the Eurozone finance ministers later today.

Euro – European Markets

The Euro continued to trade close to yesterday’s highs against the greenback this morning, as recent developments from the Eurozone have calmed worries about the region’s sovereign debt situation. Greece has taken a giant step for unlocking its next aid tranche, as the nation proposed a plan to retire close to half the debt owed to private creditors. Greece is widely expected to succeed with its plan, as the nation agreed to pay a slight premium to buy back its bonds. However, markets are skeptical whether the current plan would lower debt to levels which could pacify its lenders. The European finance ministers meeting is expected to shed light on this front. Additionally, the EU leaders are also expected to deliberate over Spain’s official request to seek aid in order to recapitalise its banking system. Spain has requested the disbursement of €39.5 billion, as per the rescue deal agreed earlier this year. Apart from developments in the Eurozone, traders are also expected to keep an eye on the Eurozone factory price inflation data later today to gauge the prospects of an interest rate going forward.

Other Currencies – Highlights

The New Zealand Dollar has climbed against the majors in today’s session amid a general prevalent optimism surrounding the Eurozone, especially Greece and Spain. Turning focus to the domestic scenario, traders are keeping a close eye on the Reserve Bank of New Zealand’s monetary policy meeting later this week wherein the central bank is expected to leave its benchmark interest rate unaltered. However, market participants are cautious, given a slim chance of the central bank following the Reserve Bank of Australia’s footsteps in lowering interest rate. With the domestic economic calendar on a lighter side, traders will keep a track on the outcome of the Eurozone finance ministers meeting and developments in the US “fiscal cliff” negotiations for further direction to market risk appetite.