Mid-Day Report: Sentiments Weighed Down by Greece

Global market sentiments are weighed down by worry that Greece might not be able to secure the EUR 130b bailout package from EU/IMF and would face disorderly default in March. Greek leaders gather today again after failing to complete the agreement on details of the austerity measures on Sunday despite having a five-hour long meeting with Prime Minister Papademos. While the principle of cutting 1.5% of GDP of spending in 2012 was agreed, there were issues unresolved, including banking and labor. EU leaders are stepping up the pressure on Greece to finish the details of reforms as French President Sarkozy said today that "time is running out" and Greece's commitment for bailout needs to be "concluded" and "signed". German Chancellor Merkel warned that "there can be no new Greece programme if agreement is not reached with the Troika".

Regarding the details of the packaged that needed to be agreed on, that included cutting government spending by 1.5% of GDP, which was agreed. In additional, there should be measures regarding re-capitalization of Greek banks, reducing labor costs including cut in minimum wages and holiday bonus, cutting civil service jobs and cuts to size of pension programmes

According to Eurostat data released today, Greece's debt spiked higher to 159.1% of GDP in Q3 of 2011, up from 138..8% a year earlier. Overall debt ratios of Eurozone nations as a whole rose to 87.4% of GDP, up from 83.2% a year earlier. For the 27 EU states, overall debt ratio rose to 82.2% of GDP, up from 78.5% a year earlier. Among the most indebted stats, Portugal's debt ratio rose 18.9% to 110.1% from a year earlier. Ireland's ratio also rose 16% to 104.9% from a year earlier. Nonetheless, the good news is that Italy's debt rose was just 0.5% higher from a year earlier to 119.6% and was actually down from Q2's number by 1.6%.

IMF cut China's GDP forecast in 2012 to 8.25%, down from prior projection of 9.0%. That's a significant slowdown from 2011's 9.2% growth rate. IMF note that "China's growth rate would drop abruptly if the euro area experiences a sharp recession." Nonetheless, IMF said that "China has room for a countervailing fiscal response and should use that space" to provide more stimulus to the domestic economy. And IMF urged that that "monetary conditions should be fine-tuned to allow for some modest additional credit to the economy."

Australian dollar is slightly lower today as dragged down by disappointing retails sales data, which unexpectedly dropped -0.1% mom in December versus consensus of 0.2% mom rise. TD securities inflation also dropped to 0.2% mom in January. Aussie is also somewhat weighed down mildly by rate cut expectations. RBA are expected to cut the cash rate by -25 bps to 4.0% tomorrow. This third consecutive rate cut since November would bring the country's monetary policy to mildly accommodative from neutral. Given high uncertainty in global economic outlook and weaker tone in recent domestic developments (rising unemployment, benign inflation and appreciation in AUD), we believe a rate cut is justified. The RBA will release its quarterly Statement on Monetary Policy and policymakers should use this opportunity to communicate more about its rationale of the new policy settings. More in RBA to Cut Interest Rates for Third Consecutive Time in February.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5759; (P) 1.5809; (R1) 1.5869; More.

GBP/USD dips further to 1.5729 so far today as consolidation from 1.5882 temporary top extends. More corrective trading would be seen. But again. near term outlook remains cautiously bullish with 1.5641 cluster support intact (38.2% retracement of 1.5234 to 1.5882). Above 1.5882 will target a test on 1.6165 key cluster resistance (61.8% retracement of 1.6746 to 1.5234 at 1.6168). Break will confirm that whole decline from 1.6746 has finished at 1.5234 already. On the downside, below 1.5641 support flip bias back to the downside for 1.5234 support instead.

In the bigger picture, price actions from 1.3503 are treated as consolidations to long term down trend from 2.1161. At this point, we're favoring the case that such consolidation is either finished with three waves to 1.6746, or five waves as a triangle at 1.6165. Deeper decline is in favor to 1.4229 key support and decisive break there should extend the long term down trend through 1.3503 low. Meanwhile, strong rebound ahead of 1.4229, or a break of 1.6165, will dampen the immediate bearish view and extend the consolidation from 1.3503 instead.

Economic Indicators Update

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