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Breaking up is hard to do

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Greece has delayed its IMF payment (legitimate, but not terribly confidence inspiring). More concerning for markets the Greek Prime Minister will address Parliament tonight (potentially indicating divisions in the governing party), and German Chancellor Merkel described a deal as being 'far away'.
  • The risk is that obvious signs of disagreement cause ordinary Greeks to question the stability of the monetary union, and to pull money from the banks. Monetary unions break up because of bank runs, and it is bank runs that cause contagion in a break up scenario.
  • Away from Euro politics we have the US employment report. We think payrolls will continue to show strength (perhaps a little less than the market expects), and unemployment will fall. The US outlook is: employment up, inflation up, growth up – so why not rates up too?.
  • Other data is overwhelmed by politics and payrolls. There are Spanish industrial output figures, UK consumer inflation expectations, and revised Euro area GDP numbers for the first quarter.