Ashburton: Will the Greeks opt for a game of chicken souvlaki?
Its been a roller coaster couple of weeks since the French and Greek elections. As we anticipated, the Greek elections have been a bigger story than the French elections, with the leader of the SYRIZA coalition, Alexis Tsipras, suddenly being propelled in
We still view an imminent Greek exit, which would very likely be disorderly, as a material risk case rather than our central case. This does not mean that Greece will never leave the Eurozone, but it will mean that the necessary firewalls can be created to protect other parts of the Eurozone and even, potentially, an orderly controlled Greek exit at some stage in the future.
Déjà vu in China
Last Wednesday, China’s State Council stated the need for a “greater emphasis on growth”. Gradual easing may become more pronounced as infrastructure projects are restarted. Recent data has been soft, including last week’s Markit PMI manufacturing survey which disappointed at 48.7, down from 49.3 in April.
Possible new policies which are doing the rounds in government think tanks and may be launched in the next few months include:
*NDRC to approve new infrastructure projects and encourage lending to finish off existing schemes;
* SOEs to take-over LGIV (Local Government Investment Vehicle) projects;
* Subsidy programmes for consumption of consumer durables in rural areas;
* Tax cuts;
* SOEs to pay out more in dividends;
* More funding for social housing;
*Easier monetary policy, pressure on banks to extend more loans, possible lending rate cuts.
The next two weeks
A relatively heavy period for data. There will be no Weekly Insights next Monday so we will preview the next two weeks.
Tuesday: US March House Price data, markets looking for continued sequential growth. US May Consumer confidence hopefully should improve following the improvement in the May Michigan survey announced last Friday.
Wednesday: the release of Eurozone monetary data. The geographical composition is likely to be more interesting than the headline figure. We also expect Brazil’s Central Bank to cut the SELIC rate. The EU Commission publishes assessments of the fiscal outlook and structural reform progress in Eurozone members.
Thursday: Indian GDP figures likely to confirm the slowdown in growth, driven by weak fixed asset investment. Japanese April industrial production numbers are likely to be strong year-on-year due to the base effect from the Earthquake/Tsunami. On the political front we will have the Irish referendum on the Fiscal compact. Given that the Irish have already taken most of the pain from fiscal austerity, a “No” vote would be perverse and as far as the polls are concerned doesn’t seem likely but cannot be ruled out.
Friday: release of May Manufacturing PMI data. In the US we get the ISM and non-farm payrolls in the afternoon, which are likely to dominate headlines. The market expects US unemployment to remain unchanged at 8.1%.
Monday: US Factory Orders data.
Tuesday: Interest rate decisions in Australia and Canada. PMI Services data. German April Factory Orders data. US May Non-Manufacturing ISM.
Wednesday: ECB policy meeting. Euro-zone Q1 GDP. German April industrial production. Australian Q1 GDP. Indian services PMI. Fed’s beige book survey.
Thursday: Bank of England policy meeting. South Korean Q1 GDP. Australian labour data. UK PMI services.
Friday: Korean and Mexican rate decisions. Italian April industrial production. Japanese Q1 GDP.
