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Carney testimony dominates as Greek deal stalls

Europe looks poised for another weaker start on Tuesday, as a lack of economic data and no progress on the Greek bailout deal offers no new bullish sentiment to investors.

A quiet start to the week has weighed slightly on investor sentiment, although the losses we’re talking about here are marginal, mainly reflecting the lack of catalysts more so than anything else. Had Greece come to an agreement with its creditors yesterday on its proposed reforms and secured its bailout payment early then investors would have had something to latch on to, but as always that was not the case.

Instead this looks likely to go all the way to the wire once again. It is worrying that Greece has proposed a list of alternative reforms aimed at plugging the financial gap in a way that it deems fairer and less painful on the Greek people and yet when asked to detail how it will be achieved, they come up with nothing. It makes you think that they’ve plucked the figures out of thin air and were hoping they wouldn’t have to back them up. Either way I still believe a deal will be reached, I just now have my doubts that Greece’s new government has what it takes to get a good deal for them.

The latest Chinese inflation data was released overnight and despite what the headline CPI figure would suggest, it wasn’t great news. While consumer prices rose by 1.4% in February, well ahead of expectations and a hefty jump from the January reading, wholesale prices fell much further than expected, by 4.8%. Given that this offers insight into future price movements, it doesn’t fill me with hope that consumer prices can maintain February’s levels, let alone come close to the country’s 3% target.

It’s also worth remembering that February’s CPI reading was likely influenced by the Chinese Lunar New Year and therefore, as with other data releases, it’s worth taking the average of the first two or three months rather than paying too much attention to February’s numbers alone. This will give a better idea of how the economy is truly performing and unfortunately, it’s unlikely to back up what some of last month’s data is suggesting.

While a lot of economic data is scheduled to be released on Tuesday, much of it is viewed as low or medium volatility events and therefore is unlikely to have much of an impact on the markets. Mark Carney will appear before the Lord’s Economic Affairs Committee in London this afternoon which could be very interesting.

It looks like the Fed will beat the Bank of England to be the first major central bank to raise interest rates, but I don’t think they will be far behind. Carney has regularly suggested that current inflation readings are deceptive in that what we’re seeing is positive deflation driven by falling oil and food prices. If the BoE see’s wages picking up further, creating inflationary pressures, they may opt to raise rates even if current inflation is well below target. As always it’s worth paying attention to Carney’s comments for any hints on the matter, especially as we await the minutes of the last meeting.

The FTSE is expected to open 15 points lower, the CAC 5 points lower and the DAX 11 points lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [4]

Senior Market Analyst, UK & EMEA at OANDA [5]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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