Water Cooler Talk

　

The GBP snapped a three week losing streak on its way to the top of the leader board. Not even a ratings downgrade from stable to negative in the UK’s credit rating by Standard & Poor's over the UK’s plans for an EU referendum was able to put a dent in sterling’s performance. The loser for the week was the NZD as it was crushed by the central bank’s 25 bp interest rate cut and its dovish insistence that further easing may be needed if future economic data is weak.

On to a topic we’ve discussed on and off over the past 12 months, currency wars. We know that there are people who doubt that a currency war is underway, but it appears that there are two types of currency wars going on right now based on media reports. First, last week began with comments about the USD being too strong that were attributed to President Obama by an unnamed French official. The comments were later denied by the President. Two days later, Bank of Japan Governor Haruhiko Kuroda suggested that the yen was unlikely to fall further on a real effective exchange rate basis because it was already "very weak". Yes we know that the purpose of the currency war is to weaken your currency in order to steal export market share from other countries and with this in mind, Kuroda’s.

comments were bullish for the yen, not bearish. Let’s keep in mind that he can afford to say this considering that the yen has moved from the 78 level to the 126 level in about 2.5 years, which works out to be about a 60% decline in the yen versus the USD. Two days later it was German Chancellor Merkel’s turn. She suggested that too strong of a euro would impede reforms in Spain and Ireland. Yup, no currency war going on here. Move along!

Second, the other currency war underway is the move away from U.S. hegemony (USD as a reserve currency). This can be seen by the setting up of parallel institutions like the IMF and World Bank led by China (BRICS Bank and Asian Infrastructure Investment Bank), and the accumulation of gold reserves by China and other central banks; and gold repatriation by certain western governments to bring home their gold stored outside their home country in places like New York and London.

These are interesting times indeed. Next week, keep an eye on the FOMC meeting, Greece, Deutsche Bank, and the Ukraine.

Greece Edges Closer to Default

 

Original article Found Here

The latest attempt to end the deadlock between Greek and EU officials in Brussels failed on Sunday. The negotiations centered on whether Greece would meet the EU's demands to make spending cuts worth €2bn (£1.44bn) in order to secure a deal that will unlock vital bailout funds. "European Commission President Jean-Claude Juncker made a last attempt this weekend to find, via personal representatives and in close liaison with Commission, ECB and IMF experts, a solution with Prime Minister Alexis Tsipras that would allow for a positive assessment in time for the Eurogroup on Thursday 18 June," the Commission said.

"While some progress was made, the talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of Commission, ECB and IMF in the order of 0.5-1 percentage points of GDP, or the equivalent of up to 2 billion of permanent fiscal measures on an annual basis." The Commission said that Greece's proposals were "incomplete", which made negotiation difficult. The talks fell apart after just 45 minutes.

The failure to reach a deal on Sunday leaves a final decision on a possible default to Eurozone finance ministers. This meeting will take place on Thursday, the European Commission said, and will be a last chance saloon for Greece if it wants to avoid a default. A Commission spokesman said: "President Juncker remains convinced that with stronger reform efforts on the Greek side and political will on all sides, a solution can still be found before the end of the month."

 

 

The IMF's chief economist Olivier Blanchard wrote in his blog on Sunday that, "Greek citizens, through a democratic process, have indicated that there were some reforms they do not want. We believe that

these reforms are needed, and that, absent these reforms, Greece will not be able to sustain steady growth, and the burden of debt will become even higher." Pensions remain a sticking point for Greece, with Athens refusing to give in to further cuts. "These are tough choices, and tough commitments to be made on both sides," said Mr Blanchard.

Below are the key hurdles Greece faces in the coming weeks:

June 15: European Central Bank president Mario Draghi to give quarterly testimony at European Parliament; Greece likely to figure.

June 16: Austrian Chancellor Werner Faymann visits Athens

Greek PM Alexis Tsipras scheduled to fly to Russia - expected to meet Russian President Vladimir Putin at St. Petersburg International Economic Forum, June 18-20.

June 17: Governing Council of the ECB non-monetary policy meeting in Frankfurt

Greece to sell 1 billion euros of 3-month T-bills.

June 18: Eurogroup meeting in Luxembourg

European Council President Donald Tusk has signaled this might be the day when the currency bloc decides Greek "game is over". General Council meeting of the ECB in Frankfurt.

June 19: EU finance ministers meeting. Greece needs to refinance 1.6 billion euros in T-bills. Greece needs to service about 85 million euros in interest on bonds held by the ECB.

June 25-26: European Union leaders Summit in Brussels.

June 30: Greece’s euro-area-backed bailout extension expires

Total payments of more than 1.5 billion euros to the IMF come due, after decision to bundle tranches due earlier in June

July: About 1 billion euros in interest payments due

Bulk of amortization and interest payments due on July 18-20 on bonds held by the ECB

July 1: Governing Council of the ECB non-monetary policy meeting in Frankfurt

July 8: Greece to sell 26-week bills

July 10: Greece needs to refinance 2 billion euros in T-bills

July 13: IMF loans repayment totaling about 450 million euros due. Eurogroup meeting

July 14: Greece needs to repay 11.67 billion Japanese yen (about $93 million) in yen loans

July 16: Governing Council monetary policy meeting of the ECB in Frankfurt

July 17: Greece needs to pay about 71 million euros in interest on the 3-yr bond it sold in 2014

Greece needs to refinance 1 billion euros in T-bills

July 20: Greece needs to repay about 3.5 billion euros in bond redemptions; bonds held by the ECB

July 31: Moody’s due to review Greece’s sovereign debt

August: 600 million euros in interest payments

Includes an 80 million euro payment to the European Financial Stability Facility

August 1: Interest on IMF loans totaling about 175 million euros; payment due by August 5

August 5: Governing Council of the ECB non-monetary policy meeting in Frankfurt. Greece to sell 26-week bills

August 7: Greece needs to refinance 1 billion euros in T-bills

August 14: Greece needs to refinance 1.4 billion euros in T-bills

August 20: Greece needs to repay about 3.2 billion euros in bond redemptions; bonds held by the ECB

Dinosaurs!

This has nothing to do with FX or the economy in general, but it’s information that we think will make you feel like Cliff Clavin (if that’s your life aspiration) and the most popular person in your office today.

Jurassic World just had a massive opening weekend where box office receipts topped $511 million worldwide. In case you’re having a little trouble grasping this number, let’s put it into perspective.

According to World Bank figures from 2013, Jurassic World’s total revenue from June 12 to 14 is greater than the annual GDP of the following countries:

1. Tonga — $466.3 million

2. Federated States of Micronesia — $316.2 million

3. Sao Tome and Principe — $310.7 million

4. Palau — $247 million

5. Marshall Islands — $190.9 million

6. Kiribati — $168.95 million

7. Tuvalu — $38.3 million