All ears will be on U.S. Federal Reserve officials this week as focus shifts to a possible coming interest rate hike. Meanwhile, in Europe, finance ministers are in negotiations concerning a final plan for aid to struggling Athens.
Paris, France, July 19, 2016 — Investors have reacted positively to recent Fed press releases and meeting minutes with the dollar gaining together with euro zone bond yields.
The general consensus in the market is that the Fed will bring in a hike soon; the only question is whether it will be this month or July. Comments from officials in the last couple of days haven’t changed that sentiment.
“It’s likely the Fed will hold off until next month,” said Steve Rogers, Director of Asset Allocation at Orix Capital Trading, “They will have a look at the outcome of the G-7 economic summit in Japan this week which could affect things. Major events in Europe could also play a part,” he added.
With the Brexit referendum due next month, the Fed could very well hold off.
The minutes from the latest meeting indicated that their most important preconditions for a rate increase were signs of economic growth this quarter as well as positive improvement regarding inflation and employment data.
“Q2 is expected to look very solid as data has showed that the economy performed much better than expected in the first quarter,” Rogers said via email. “Data from Britain has shown that fallout from the Brexit vote is unlikely to shake up the bigger economies in Europe.”
With the Eurogroup meeting of finance ministers coming up this week, the feeling is that a new agreement will be worked on to help Athens continue to pay off its creditors in the coming year.
Officials have also commented that they may help Greece to restructure its debt obligations in order to make it more sustainable. The IMF has previously offered objections to the idea and these differences will need to be straightened out before any firm plan can go ahead.
The IMF insists that investors need more transparency with regard to the debt repayment situation, while European authorities want to wait a few years until a final decision is made on that issue.
Analysts at RBC Capital said, “Concessions are likely from the euro side as bringing the IMF on board with any plan is crucial. We don’t expect a firm decision this week but very soon in the near future.”
Orix Capital Trading