Apparently you can leave the euro

The Greek crisis continues to lay open the flaws that exist within the euro. Whatever the outcome, the euro no longer appears to be a currency union that one cannot escape from.  European leaders have openly discussed over the weekend a "Grexit" and how it may be engineered. The Germans have even put forward the notion of temporary exit for Greece from the euro.  There is now the possibility of the worst of two worlds, continuing to help Greece fund an unsustainable debt burden, and at the same time providing a suggested mechanism for a country to leave. Mario Draghi's  " do whatever it takes" line is looking a little weaker after the events of the passing weeks. The crisis has once again created a rift between France and Germany, after the efforts from the respective leaders of both nations to repair relations in the past year.

Over the weekend Greece has been offered an ultimatum containing a far tougher set of parameters from creditors, that will have to be approved by the Greek parliament by Wednesday. According to reports on Bloomberg the Greek government is agreeable to the latest set of demands, whether they can get this through parliament is another question.

After a rocky start equity markets had a strong end to the week, as investors pinned their hopes on a resolution to the situation. UK and European leading indexes finished the week higher than when they started. Indications over the weekend from the on line trading exchanges are that equities will open the week pretty much in line with where they closed on Friday.

Fund flow data reported a large inflow ( $25bn) into equities in the past week, roughly equivalent to the total for the whole year. Bond fund redemptions continue, despite this bonds have still attracted over $100bn this year.

the Vix index fell sharply on Friday to close the week just below 17, having touched 20 earlier in the week. The Vix hitting 20 has on past occasions been the point at which sentiment has become bearish enough for equities to rally, and this proved to be the case again last week.

Looking to the week ahead aside from the Greek situation, on Tuesday the latest retail sales data in the US is released for the month of June. On Wednesday Janet Yellen offers her semi annual  testimony to congress, on the state of US economy. Analysts will be looking for further indications of when the first rate rise will take place, and whether the events in Europe will have any bearing on that decision.

For the week ahead in the UK on Tuesday we get the latest inflation data, the annual core inflation is forecast to pick up slightly to 0.9% in June  from 0.8% in the previous month. On Wednesday we get the latest employment data, expectations are for the unemployment rate to stay close to 5.5%.

Likewise for the euro area we get the latest inflation data on Tuesday, we also get the results of the latest ZEW economic sentiment survey. The survey should give some indication as to how much the  troubles within Greece have been affecting economic sentiment within the rest of Europe. 

Posted on July 13, 2015 .