Europe Lower as Greece Discusses Options With Russia

Europe is poised for a slight softer open on Wednesday, following a similar close in the US as investors turn their attention to Greece’s meeting with Russia, the FOMC minutes and the unofficial start of corporate earnings season.

There are a lot of potentially big catalysts for the markets today so traders may be a little more nervy than usual. With the FOMC minutes not being released until this evening and Alcoa’s earnings report coming later, the first thing we need to worry about is Greek Prime Minister Alexis Tsipras’ meeting with Russian President Vladimir Putin.

Greece is due to repay 448 million euros to the IMF tomorrow and with no deal being near with its European partners over the bailout extension, it would appear that the Greek Prime Minister is exploring other options. Given the strained relations between Europe and Russia right now following the implementation of sanctions on the latter for its role in the Ukrainian crisis, I have no doubt that any deal between Greece and Russia will be viewed as a betrayal by its European partners who want to be seen to be making a unified stand against Putin.

The deal will potentially include a credit line being offered to Greece as well as discounted natural gas, which it already imports from Russia. While I’m sure Putin would consider offering this to Greece in an attempt to drive further division in Europe and get back at its foes, he may have other ideas up his sleeve as well and it’s been suggested that he has his eye on a few Greek assets in exchange that could make the talks even more interesting and potentially lead to them breaking down if Tsipras rejects any deal on them.

If Greece fails to meet its obligations to the IMF tomorrow, questions will be raised on whether this constitutes defaulting on its debt and with social security payments, a six month T-bill refund and the latest decision on the European Central Bank’s Emergency Liquidity Assistance program to come over the next week, things could escalate very quickly. Some potentially very nervy times lay ahead for Greece and the chances of it leaving the eurozone and defaulting on its debt are growing by the day.

The Bank of England will begin its two day monetary policy meeting today, with the latest decision being announced tomorrow. With no change expected again, and potentially for the rest of this year, this is likely to be another non-event this month.

The FOMC minutes will be released this evening and while they always have the potential to cause massive waves in the markets, I’m not convinced we’ll get that today. The Federal Reserve has made it very clear that any moves in interest rates now will be data dependent and the minutes are unlikely to highlight any change in that view. We know following the meeting and release of the dot plot that the first hike is still likely this year and the rate of hikes following that is likely to be slower than previously thought. With that in mind, I don’t think we’ll see anything today that will change that, although as always with the Fed, there’s certainly no guarantee.

Dot Ploy

US Dollar Plummets As “Patient” Withdrawn

Alcoa will unofficially kick off first quarter earnings season after the close on Wall Street. In recent weeks we’ve seen big efforts to lower expectations which is not uncommon in recent years but I’m not convinced that these efforts will prove as successful as in the past. Poor weather, a strong dollar and weak commodity prices are all likely to have all hit US corporates in the first quarter and I’m not sure what kind of a positive spin they can possibly put on that.

The FTSE is expected to open 2 points higher, the CAC 3 points lower and the DAX 15 points lower.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.