The markets remain optimistic that the talks between bond holders of Greek debt and the authorities will reach an agreement, even though expectations have been that the talks would have concluded by now. 

The deadline continues to be pushed back and investors remain none the wiser as to what will be agreed and how much of a haircut investors will have to take in order to avoid a Greek default towards the end of March.  The markets remain surprisingly strong considering the risks involved and if a big haircut is agreed then what will Ireland and Portugal think?  They and other European states will hardly feel delighted that Greece has managed to negotiate half of its debts away meanwhile the others will have to pay up.  If the first domino falls then others could follow if they feel an agreement to restructure their debt can be made whilst remaining in the eurozone. 

But whilst the doomsayers continue to lambast the European project and its leaders, as mentioned the risk appetite increases with the FTSE marking new highs for the year. Greece’s creditors have said they have reached their limit in regards to the concessions on what the country owes them.  Some will have to accept as much as a 70 percent write down on their assets in exchange for something else that will pay them as little as 3 or 4 percent over three decades, a paltry amount when you consider what Greece’s 10 year bond yield is currently at!  This can hardly be called the last chance saloon, because we’ve seen this too many times before, but if the bond holders are no longer going to budge, then it’s either acceptance or default for Greece.

At the time of writing the FTSE is feeling quite perky this morning as it trades at a new year high around 5750.  Economic data is thin on the ground today so the main driver will likely be the action in Europe.  Of note though is EU consumer confidence which will be watched to see just how consumers on the continent are coping with the back drop of higher unemployment and continued sovereign debt crisis.  Later in the week things pick up a little on the data front and most crucial for the UK is the first reading of Q4 GDP on Wednesday, which is expected to show that the economy contracted in the latter part of 2011.

After a very strong week for the euro it lost some ground against the dollar, as focus was back on the elephant in the room, which is Greece.  They are still attempting to write down 50% of the value of it’s debt with creditors, although going into the weekend it wasn’t looking so promising.  However as mentioned, this morning an offer is on the table, which may not completely suit them but it has encouraged traders so we’re now seeing a rally in the euro.  The EUR/USD pair is trading higher at 1.2940 and with this little bit of momentum we could see this bear market squeeze continue further.

Gold ended the week on a high as nervous investors wanted to hedge themselves ahead of a busy weekend with Greek officials looking to strike a deal with the country’s bond holders.  By the close of business, it had risen 7.7 dollars to 1665.7, the highest move since December 12th, keeping the bullish momentum.  Currently, things are still looking good for the precious metal which is trading up at 1669.4.

Alarm bells were ringing on Friday after the International Monetary Fund cut its forecast for this year’s world economic growth, leading investors to believe that demand for energy would plummet, sending crude prices through the floor.  No support was provided by the single currency either as there was no deal reached on the Greek’s debt burden.  At time of writing, Brent crude is up slightly on the day at 110.23 as the EU announces that it will enforce an embargo on Iranian oil from the 1st July.

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