While most of the focus for the last few months has been on the US, Europe (or more specifically Greece) came under the microscope once again over the weekend. At a meeting of Eurozone finance ministers last Friday, parties were unable to find a compromise on discussions around additional funding for Greece. The IMF is looking for more austerity, which the Greek government is not accepting, and debt relief, which Germany is not in favour of. Parties are trying to finalise the negotiations by the end of February, ahead of national elections in the Netherlands, France, Germany, and potentially Italy, later this year – so watch this space.
Locally, last week’s low December quarter CPI data has seen financial markets unwind previous expectations of a rate hike, but only slightly. The overriding factor still influencing our market is the forecast of two and possibly even three US rate hikes this year, which is placing a floor under any potential rate cut by the RBA here. The futures market still expects the next move in rates by the RBA as being up, but not until 2018 (refer chart below).
Interbank futures pricing of the cash rate