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A political new year

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  • Political risk is back in markets, with the 25 January election in Greece unnerving investors. An article in Der Spiegel suggested that the German government might allow a Greek exit from the Euro (it is not, of course, the German government's decision).
  • The Euro has weakened significantly in foreign exchange markets on these political concerns. Perhaps the most troubling aspect of current media reports is the idea governments may be able to limit the contagion of a breakup. Monetary union breakup contagion tends to be populist, not political.
  • The Euro weakness means dollar strength, which means a lower oil price in dollar terms. This should be an economic positive for the world economy, though not as positive as in the past. The ECB's Draghi is likely to continue to misrepresent the relative price change as a deflation force.
  • German consumer price inflation (preliminary data) is due, but is not likely to have much market influence amidst the political noise. The UK has some construction data due out.

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