Greek Bank Merger Helps Risk Appetite

A tie-up between the second and third largest banks in Greece sparked a rally in risk assets to start the week. AUD and NZD were best performers, CHF and JPY lagged. Japanese retail sales and employment are the highlights of the Asia-Pacific session.

Greece’s Alpha Bank agreed to buy Eurobank Ergasis in a move that sent Greek’s main stock market index up 14%. The merger sent a signal that the worst of the crisis in Greek banking may be over as the industry starts to re-organize. The announcement helped push EUR/USD to the highest since early July. The gains were capped and later faded, in part, due to Lagarde’s weekend comments suggesting banks urgently need capital.

Comments from Trichet were somewhat cryptic. He said he expects inflation to remain above 2% in the coming months but noted that the inflation outlook is “under study.” He also omitted the comment from the Aug. 4 ECB press conference about “upside risks to price stability.” It’s a dovish shift but an expected one.

The Swiss franc lagged on risk appetite and the declining need (at the moment) for a banking haven. The S&P 500 gained 2.8% to 2010 and USD/CHF touched above 0.8200. The gain in stocks was an important technical breakthrough as the close was above the Aug. 17 high and the highest since Aug. 5. One caveat was that the gains came on the lowest volume of the month.

Economic data also boosted sentiment. US personal spending rose 0.8% in July compared to the +0.5% expected. Critics attacked rises in autos as a false skew and also noted that the spending came before the US downgrade. Pending home sales fell 1.3%, as expected.

Asia-Pacific Preview

Japan’s unemployment rose to 4.7% from 4.6% while retail sales rose 0.8% from -0.5%. Household spending fell 4.2% after a 2.1% decline in the prior month.