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Lagard Intent on Greek Debt Restructuring

Yesterday the ECB convened and decided to keep their monetary policy unchanged. During a press conference, the head of the regulator, Mario Draghi, didn’t make any serious announcements, instead just repeating that the ECB in any case intends to continue its quantitative easing program until September 2016 and as long as is needed to correct inflation to the desired level: just below 2% over the medium term.

According to data published yesterday, the number of initial applications for unemployment benefit in the US fell to 281,000 from 296,000 (slightly better than the expected 284,000). On the whole the situation on the labour market is improving and this was noted by the Fed’s Janet Yellen.

The Philadelphia Fed’s manufacturing index was down to 5.7 from 15.2 last month. In the short term, this caused a weakening of the dollar.

During yesterday’s speech, the Bank of England’s Mark Carney announced that the regulator could precise as to when they intend to put up their rates towards the end of this year. As such, the UK regulator could tighten up their monetary policy sooner than expected.

The head of the IMF, Christine Lagard, has announced that the fund will take part in the aid package to be provided to Greece under the conditions that the restructuring of Greek debt and serious reforms will be considered. A reduction of the debt burden could be achieved by means of extending the debt pay date and also by dropping interest rates as much as possible. A resumption of Greek banks’ operations on the 20th June is pretty likely after the ECB raised their emergency financing limit by 900 million euros yesterday. The Greek government should announce a reshuffle today.

According to today’s data from an ECB survey, inflation forecasts for the Eurozone for the current and next year have increased only slightly. Slow inflation growth in the region persists and, most likely, this fact will confirm the need for an extension of the ECB’s bond purchasing program.

The Eurozone HICP this year could stand at 0.2% against the 0.1% forecasted in April. Figures for next year are set at 1.3% (April forecast: 1.2%) and in 2017 the index is still expected to be at 1.6%.

According to a report, the main reasons for 2016 and 2017 expected rises in inflation will persist, albeit with a moderate economic activity, monetary measures a change in currency rates and base effect due to oil prices. A more long term forecast shows that inflation expectations according to the survey have increased a little: up to 1.86% from 1.84%.

Inflation expectations from the survey are less than what the ECB experts are saying. In June the ECB forecasted consumer prices this year to rise by 0.3%, by 1.5% next year and by 1.8% in 2017.

The euro/dollar is still trading at 1.0887. There’s likely to be movements on the pair, depending on inflation data from the US.

Today it’s worth having a look at inflation data from the US and Canada, as well as the amount of construction permits issued in the US. Also, the consumer confidence index from the university of Michigan is also worth a look. The vice president of the Fed, Stanley Fischer, is set to give a speech.

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