Greece Groundhog Day All Over Again: Strategist
Greece’s leaders and representatives of the "troika" responsible for its bailout failed yet again to reach agreement on the terms of a second bailout by Tuesday morning leaving European markets facing another day’s uncertainty over the Mediterranean country.
“It’s like Groundhog Day over and over again,” said Geoffrey Yu, currency strategist at UBS, making a comparison to the film in which Bill Murray find himself trapped in a repeating time loop.
“The FX market has been disappointed so much by what’s going on. It feels rational for governments and corporates to start looking at the implications of a Greek exit," Yu told CNBC.
When negotiations over new austerity measures in Greece as part of its second bailout started in earnest this year, the deadline of March 20 for repayment of a 14.5 billion euro ($19 billion) bond by the heavily indebted country seemed a long time away. As they drag into February, markets are increasingly restive.
The troika of officials from the European Union, International Monetary Fundand the European Central Bank are trying to reach agreement with the recently formed Greek government, under technocrat Lucas Papademos.
Elena Panaritis, MP for Pasok, the party of former Prime Minister George Papandreou, told CNBC that she believes they will reach agreement on Tuesday.
Austerity measures are a sticking point as the country prepares for more strikes by unions.
German Chancellor Angela Merkel warned Monday: "There can be no new Greece program if agreement is not reached with the troika... All those who bear responsibility in Greece must know - we will not deviate from this position."
“This is a time of danger,” Nick Beecroft, senior markets consultant, Saxo Capital Markets, told CNBC Tuesday. “The market is somewhat underestimating the possibility of disorderly restructuring or even a Greek exit.”
He believes that there will be some profit-taking among holders of peripheral euro zone debt, which has seen yields fall in recent months.
Investors should consider selling the euro to guard against the possibility of a “snapback” in its price, Yu believes.
“There have been snapbacks in the euro so often in the past few months that traders don’t want to take risks. We think that towards the year end, the Swiss National Bank (SNB) will raise the euro’s ceiling against the Swiss franc toward 1.25 or even 1.30, and it seems inevitable that there should be a snapback,” he said.
“Profit-taking in the euro will be reflected not just in fixed income, but in FX and maybe equity markets over the next few weeks.”
The SNB introduced a ceiling on the valuation of the Swiss franc against the euro of 1.20 last year, in an attempt to keep the cost of Swiss exports down.