Financial markets waxed and waned on Greek bailout fund and the PSI deal. A step closer to the new tranche of funding as the debt-ridden government agreed to cut minimum wage by 20-22%, reduce public service job by 15 000 and lower pensions. The EU/IMF/ECB troika remained scheduled to hold a meeting at 6 pm in Brussels tomorrow to discuss the Greek rescue package. Germany's Deputy Finance Minister Steffen expressed his disappointed in Greece, saying the country had made little progress since 2010. With no major US economic data released during the day and investors showing optimism on the final agreement between Greece and the troika, Wall Street ended the day higher with DJIA and S&P gaining +0.045 and +0.22% respectively. In the commodity sector, the prompt contract for WTI initially rose to a 6-day high of 100.09 but gains were pared after the release of US oil inventory. The contract ended the day at 98.71, up +0.30%. The equivalent Brent contract gained +0.83% during the day.
Talks about Greece's private sector scheme (PSI) remained underway. The media continued to speculate the a deal will be finalized soon. It's also reported that the ECB has agreed to exchange the bonds it has purchased on the secondary market since last year at below face value. This is expected to help relieve Greece's debt burden by as much as 11B euro. Some believed that these bonds may be swapped for EFSF bonds, with the EFSF returning the Greek bonds to Greece based on the discounted purchase price. However, a Reuters' report said that the ECB members remained divided on the move.
There have also been talks that China may 'move shortly' to invest as much as 100B euro in the EFSF. Yet, Yuan Gang-ming, an economist at the Chinese Academy of Social Sciences, the person who made the above comments, emphasized that this was his own forecasts with nothing to do with the government. Talking about China, the world's second largest economy reported a bounce in inflation in January. Headline CPI surprisingly rose +4.5% y/y in January, accelerating from +4.1% a month ago, as driven by food inflation. While the acceleration was likely due to seasonal factor - Lunar New Year, it may delay the government's implementation monetary easing measures such as reduction of reserve requirement ratios.
The ECB and the BOE will hold meetings for monetary decisions. We expect the ECB to hold the main refinancing rate unchanged at 1% while the BOE to expand asset purchases by +50B pound. The economy has been dismal in the UK. The central bank had refrained from adding more easing measure due to stubbornly-high inflation. However, in recent months, inflation has started to moderate with headline inflation in December easing to +4.2% y/y from +4.8% a month ago and +5.2% in September. This should give policymakers flexibility to add more stimulus to bolster growth.