Greece Has Another Deadline

A meeting of European finance ministers broke late in the NY session. The market remained fairly calm as Luxembourg's PM Juncker and EU's Rehn attempted to reassure the market that a deal would be reached by next week, but Greece's Finance Minister Venizelos spooked the market with his comment that Greece faces the choice of staying in the euro, with the markets seemingly taking this to mean that Athens is considering leaving the euro. However, we are of the opinion that a deal will be reached before the Feb 15 deadline.

Luxembourg's PM has told Greece to identify EUR325 million cuts by next Wednesday. Juncker was also very clear that any deal would need to involve written assurances from Greece's main political parties that they would support the deal, given that Greece faces general elections in April which could see the current technocratic government dethroned (recent polls suggest this is a definite possibility). Rehn also added that deal between Athens and private sector Greek debt holders is practically finalised.

We are expecting trade balance figures out of China later today showing that its trade surplus shrunk to an expected USD10.40 billion, at the same time consensus estimates are pointing towards a slump in headline export and import figures of 1.4%y/y and 3.6%y/y respectively. Traders will be closely watching these figures to get an indication of the impact that weak levels of European demand are having on Chinese exports. Furthermore, the imports data will give the market an insight in to the strength of domestic demand.

In Australia, the market is waiting for the RBA's first statement of monetary policy for the year, scheduled to be released at 11:30 Sydney time. The focus as always will be on revisions to the official growth and inflation forecasts. At the front end, we are not expecting much of a change in growth forecasts given that the bank was right-on in its Q4 forecast. However, given the recent slowdown in the coal sector, combined with a softer outlook for employment and consumer sentiment, we expect the RBA to revise their growth forecast for 2012 and 2013 down – possibly by around 0.5% and 0.25% respectively. Furthermore, with Tuesday's decision to leave rates alone we expect that the bank's inflation forecasts will remain around current levels.