Coming week is full of big fundamental announcements, including from central banks. On Tuesday, the Bank of Japan will disclose its interest rate decision. The BoJ has no room to cut rates any more, but it could introduce some unconventional measures. After all, the Japanese central bank lags behind its counterpart in this area. For example, it still has plenty room to expand asset purchases within the JPY 15 trillion ceiling  that has so far been announced. In addition, this ceiling could be raised to, say 20-25 trillion. Of course, the real issue here is the ever-stronger Yen, which is not showing any weakness, in particular against the USD.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

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Talks between Greece and bondholders were supposed to be concluded on Friday. However, latest reports indicate that we still have to wait through the weekend to find out details of the deal. As things stand now, investors would lose more than 50% originally proposed perhaps as much as 70%. The old bonds would be replaced with new ones, having a 30-year maturity and offering a progressive coupon, or interest rate, averaging out at 4%. Greece must reach an agreement as soon as possible, or it will not receive next installment of aid. After all, without a deal, or more money from EU/IMF/ECB, Greece will not be able to repay EUR 14.5 billion of bond repayments due in March.

Euro has been rising most of the week, as if market participants expected a solution and some stability in the common currency. Realistically, the EUR was due for a rebound; it had been oversold against most currencies. This run-up was a combination of a technical bounce and the anticipated good news from Greece, and in case of the EUR-USD, it reached 1.2986. It will be interesting to see how the Euro reacts to that, but one should consider the possibility of “buy the rumor sell the fact”. Meaning, the EUR could fall again once the supposedly good news is finalized.

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Much is being done of the fact that Greece could be on the verge of reaching of some kind of agreement with its creditors. It started a few months ago when Sarkozy supposedly negotiated a “voluntary” forgiveness of about 50% of debt held in private hands. This includes hedge funds, banks, pension funds and other institutional investors. It is estimated they hold about EUR 155 billion of Greece’s debt load of about EUR 260 billion, or so. Now Greece is directly negotiating with this group, which is represented by Charles Dallara, managing director of the Institute for International Finance.

These talks are not going well. According to some sources, the Greek government has proposed an even larger “haircut” of 68%, meaning a recovery rate of only 32 cents on the Euro. In addition, future interest payments would be lowered, too. There are plenty of conflicting stories, with some suggesting that the original 50% threshold is still valid. We shall see. Whatever it turns out to be, Greece is simply strong-arming, even blackmailing its creditors into taking losses, with only faint hope of actually recovering anything. According to Fitch, Greek default is inevitable and only a matter of time, and any talk to the contrary, including these negotiations is just posturing.

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