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Something other than Greece (and Greece)

| Posted by: Paul Donovan | Tags: Paul Donovan

  • We are in the eye of the storm on Greece today – the caffeine fuelled negotiations concluded yesterday, the Greek Parliament is due to vote on reform tomorrow. True, Ecofin meet today but nothing useful is expected from them. Nothing useful has ever come from Ecofin, and it is a little late to break the pattern.
  • In the absence of Greece we can focus on data, and fortunately the US is providing us with evidence of US consumers' love of the shopping mall via retail sales. The headline is likely to be subdued by the auto sales volatility, but the underlying data should point to a strong consumer.
  • Yellen and the Fed will not be influenced by a single data series alone, but the strength of the US consumer is founded on strong wage growth (in excess of 4.2% yoy), rising wealth and increased household formation. All of those supports seems structural and inclined to push the Fed towards tightening.
  • European data has an inflation bias to it. Final German CPI is likely to confirm the domestic drivers of prices in that economy. The UK inflation data should be benign, but there is evidence that the supermarket price war may be starting to fade, which implies higher inflation in the future. Spanish and Italian CPI are also due.