Market Rumours

Greece has been told that it must make further spending cuts or face sanctions, the eurozone chief has said. Jean-Claude Juncker told German radio that Greece must understand that other eurozone members are not prepared to pay for its mistakes. After the European Union vowed to helped Greece last week, the tone has turned harsher this week as talk of a bail-out proves unpopular. Greece's woes have sent the euro down to a nine-month low recently. Mr Juncker - chairman of the 16 nations that share the single currency and also Luxembourg's prime minister - has said Greece agreed to outline additional cuts in March if necessary. He added that further measures would be imposed if Greece's debt reduction plans were not shown to be on target by 16 March.

Asian shares were higher Tuesday, with stronger-than-expected earnings driving the Australian market up. Activity remained fairly subdued as many Asian markets--including Singapore, China, Hong Kong and Taiwan--were closed for the Lunar New Year holidays and also due to Monday's U.S. market holiday. Japan's Nikkei 225 was up 0.4%, Australia's S&P/ASX 200 was up 1.1% and New Zealand's NZX-50 was up 0.5%. South Korea's Kospi, which resumed trading after a holiday Monday, was up 0.6% Doubts on whether an explicit rescue plan would be delivered for fiscally stressed Greece at an ongoing meeting of European Union finance ministers sidelined some investors. "It appears markets remain sceptical over the chances of concrete measures being announced to support Greece," said Bank of New Zealand in a report. But there were signs these concerns were easing. Macquarie Private Wealth client adviser Marcus Droga, said he expects the EU to ring fence Greece's sovereign debt issues, adding that China's policy tightening should help keep growth on a sustainable footing. "They will do what they need to do and we can get on with this patchy global economic recovery," he said. The Australian market was lifted by stronger-than-expected earnings. Westpac bank rose 4.2% after its first quarter cash earnings jumped 33%. Other banks followed Westpac's lead, with ANZ bank up 3.3% and Commonwealth Bank of Australia adding 1.1%.

Investors have overreacted to China tightening and global economy (mostly U.S. and emerging markets) will keep recovering, says BlueGold's Stephen Jen; Greece debt woes will "most likely be a localised problem with an impact concentrated primarily on Europe. I see risk assets (equities and commodities) to eventually assert themselves, while Euroland lags." Problems for Greece are "less serious than the Lehman shock, but more serious than the Eastern European and Dubai crises. The EMU faces a 'Toyota problem' (for having expanded too rapidly, at the expense of the 'quality' of the union)." Expects economic, policy trajectories of U.S., Euroland to diverge, forcing EUR down vs USD; "the focus was on the U.S. in 2009, and has shifted to Euroland in 2010. With intensifying deflation, runaway public debt and an ageing population...Japan could be next."

GBP/JPY may fall toward 140.00 if U.K. January CPI, due 0930 GMT, delivers comes in lower than expected, prompting investors to buy safe-harbor JPY, as price declines would be negative for U.K. economy, says Barclays Capital FX Strategist Yuki Sakasai; lower-than-expected figures may strengthen view U.K. economy has "downside risks, which will likely weigh on the pound." Barclays Capital expects CPI to fall 0.4% on-month in January vs +0.6% in December. Meanwhile, EUR/GBP may trend lower with fall to 0.8600 possible amid uncertainty over Greece's debt problem. EU finance ministers currently holding regular monthly meeting, which ends later in global day. GBP/JPY last at 141.02; EUR/GBP at 0.8681. EUR/CHF tipped in 1.4640-1.4690 range vs 1.4655.

GBP/USD should strengthen in 2H 2010 as UK economy gathers pace, though says risk is BoE continues its bearish outlook, weighing GBP, says a Sydney based FX strategist. Expects GBP/USD to trade 1.63 near term, 1.7200 year end. Last 1.5665.

EUR may fall vs JPY, USD as Luxembourg Prime Minister Juncker's statement moves towards supporting idea that Greece must find its own way out of its debt crisis, which may continue to weigh on risk-sensitive EUR, says Gaitame.com chief analyst Daisaku Ueno; EU looks like it "doesn't want to make a decision at this point, although this was to a certain extent expected. Uncertainty over Greece's debt issue may continue to fuel risk-aversion," weighing on EUR. Juncker says euro group wants to see more details immediately about implementation of Greece's announced deficit reduction plan for this year. Ueno adds if Tokyo shares stagnate later, that may also pull EUR down. EU finance ministers currently holding regular monthly meeting, which ends later in global day. Tips EUR/USD in 1.3500-1.3650 band vs last 1.3599; EUR/JPY in 121.00-123.00 vs 122.44. Says USD/JPY likely to stay in 89.50-90.50 range vs 90.01.

The pound has avoided the mauling suffered by the euro in a crisis over debt-prone countries such as Greece, but the currency faces its own problems and could come under further pressure to weaken.A sluggish economic outlook, expectations of prolonged monetary easing and of more fiscal tightening, and uncertainties surrounding an upcoming general election will weigh on the pound in the near term, analysts say.Bank of England Governor Mervyn King said last week after the central bank forecast inflation would stand well below target in the medium term that the bank may have to pump more money into the fragile economy.In contrast, Federal Reserve Chairman Ben Bernanke the same day laid out his most detailed plan to date on how the U.S. central bank would exit the extraordinary steps taken to mitigate the effects of the global financial crisis. Analysts said the Bank's latest policy meeting minutes to be released on Wednesday could spur speculation of further easing."The Monetary Policy Committee may show that a significant minority voted for an extension of quantitative easing, perhaps including Governor King," said Adarsh Sinha, currency strategist at Barclays Capital. "That could push back expectations for when UK rates will rise versus those in the United States," he said, adding the pound could fall back to near $1.55 in the next month. It was last at $1.5660. Furthermore, the Bank's economic projections in its latest inflation report -- showing growth not returning to pre-crisis levels until mid-2011 -- did not factor in the likelihood of more fiscal tightening after an election expected in May. "A tighter fiscal stance than implied by the pre-budget report might well see the Bank of England keeping rates on hold for far longer than markets currently expect, which should keep sterling under even more downward pressure," said Rob Carnell, economist at ING. Data on Friday showed currency speculators increased their bets for sterling to fall further. Net short positions against sterling in the week ended February 9 rose to their largest since the period ended October 13, 2009. The currency hit a nine-month low against the dollar of $1.5535 last week. It has fallen some 3 percent against the dollar so far this year, although it trails a 5 percent decline in the euro versus the U.S. unit.