WORLD ECONOMIC & MARKET DEVELOPMENTS
GLOBAL MARKETS: Wall Street consolidated overnight retaining recent hefty gains, with the S&P500 index closing flat on the session despite the overall positive earnings reports, while Asian equity markets closed slightly higher on Friday in holiday-thinned trade ahead of the Lunar New Year holidays. Fuelled by the prospect of a sizeable fiscal stimulus by Donald Trump’s administration, US Treasuries lost ground, with the 10-yr yield hovering around 2.52% at the time of writing, within distance from yesterday’s one-month high of 2.55%. In Italy, the 10-yr yield climbed to a one-year high of 2.28% on Thursday on strong Italian bonds sell-off, as political risk premium rises after Wednesday’s Constitutional Court ruling, which increased risks of snap elections later this year. In FX markets, the US dollar strengthened against its major currency peers, with the DXY dollar index advancing to a one-week high of 100.82 in European trade. In Japan, the BOJ’ s move to increase 5-10yr Japanese government bonds purchases to JPY450bn from JPY410bn previously has brought the 10-yr yield down ca. 0.08% from yesterday’s eleven-month high of 0.101%. Favoured by the Central Bank’s move, the USD/JPY rose to a one-week high of 115.31 in early European trade.
GREECE: The Eurogroup that convened yesterday did not produce the desired result for Greece which was the ‘green light’ for the return of the mission heads to Athens and the resumption of formal discussions in the context of the 2nd programme review. Instead, the Eurogroup urged all sides involved to accelerate their work so that a staff level agreement can be achieved as soon as possible. Although it was acknowledged that the Greek economy is recovering faster than expected and that the strong dynamics on the fiscal side have produced better revenue than expected, concerns were expressed as to whether this good performance is of a permanent or temporary nature. The IMF has reportedly submitted to its Board of Directors a DSA on Greek public debt which deems it highly unsustainable.
SOUTH EASTERN EUROPE
CESEE MARKETS: In FX markets, currencies were flat to weaker in morning European trade today as the US dollar recovered some ground. In the CESEE region, the Turkish lira remained under pressure ahead of a review by Fitch on the country’s sovereign credit ratings
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