Daily Agenda: Eurogroup and Greece Showdown in Brussels

Wal-Mart increases wages; U.K. posts retail sales slip in January; opposition-party mayor of Caracas arrested.


Jasper Juinen

The Eurogroup is holding a last-ditch meeting over Greece’s debts today, keeping the Mediterranean country and its economy at the forefront of international investor sentiment. The Greek government filed an official proposal for an extension yesterday that showed Greek Prime Minister Alexis Tsipras and Finance minister Yanis Varoufakis inching towards greater compromise with European Union demands, even as they continue publicly to posture themselves as defiant. It will require careful finesse on the part of the Greek government to secure the funding it needs and retain the backing of their antiausterity voting base. News that the European Central Bank marginally increased the emergency liquidity assistance funding facility for Greek banks to €68.3 billion ($77.2 billion) provides little relief for investors, however, given the stopgap nature of the plan.

Mayor of Venezuela capital arrested. Masked Venezuelan National Intelligence agents arrested Caracas Mayor Antonio Ledezma yesterday, and fired shots into the air to disperse gathering bystanders during the arrest. The beleaguered administration of President Nicolás Maduro, who inherited power from late president Hugo Chavez and has seen its popularity plummet as economic conditions worsen, has moved in recent years to limit the local authority of the popular opposition party mayor. Government media outlets have accused Ledezma of participating in planning for a U.S.-backed coup.

Wal-Mart announces pay increase. Wal-Mart, the largest U.S. retailer, announced yesterday an increase in hourly wages for as many as 500,000 store associates. Under the schedule, hourly wages will rise to a minimum of $9 per hour by April and $10 in 2016, as well as comparable increases for higher-paid hourly employees. As a major U.S. employer of unskilled workers, some economists and strategists note that the move could signal that this is a signal that some wage competition is creeping back into labor markets as jobless figures continue to decline.

U.K. retail sales disappoint. At 5.4 percent year-over-year, total retail sales in the U.K. registered softer than consensus forecasts after a surge in November and December. Office for National Statistics data also revealed that average in-store prices were 3.1 percent lower than in January 2014 and that online shopping for the month was up 12 percent for the year.

Mixed data figures come out of Europe. Purchasing managers index figures for January released by Markit this morning were generally positive, with aggregate euro zone composite levels at a multimonth high of 53.5 and France-specific levels at 52.2, the highest level since 2011. Separately, January producer price index levels for Germany registered significantly softer than consensus forecasts, with headline data down 0.6 percent for the month, keeping deflationary concerns a focus for regional investors despite improving activity measures.

Portfolio Perspective: How ‘Patient’ Will Congress Be With Yellen? Derek Holt, Scotiabank


By far, the largest risk facing U.S. — and perhaps global — markets next week will be Federal Reserve chairwoman Janet Yellen’s semiannual monetary policy report and testimony. Starting at 10 a.m. Eastern both days, she will address and be grilled by the Senate Committee on Banking, Housing and Urban Affairs on Tuesday and the House Committee on Financial Services on Wednesday. Unlike the minutes of the January 27–28 Federal Open Market Committee meeting, Yellen’s testimony will be informed by the strong January jobs report that was marked by 257,000 jobs having been created and 147,000 of upward revisions. Also since the January FOMC, markets have digested better-than-expected euro zone GDP figures and shown little obvious concern about global contagion risk stemming from developments in Greece.

That said, even though the minutes may have been stale, they may have confused markets. Yellen has the opportunity to clarify things. Indeed, our biggest takeaway from the FOMC minutes was that the committee appears to be paralyzed by the issue of how to communicate the commencement and pace of rate hikes, as opposed to saying anything concrete about when hikes may commence. We therefore didn’t quite see the minutes the way the markets did particularly in terms of our more ambiguous interpretation of “keeping the federal funds rate at its effective lower bound for a longer time.” To us, it’s a truism not to have hiked in January while subscribing to not hiking for a longer time. The question remains: longer than what? Longer than March or April? Most certainly. Longer than June? July? September? 2015? Rewrite the dot plot and take hikes out of 2015? The minutes were poorly written and it’s not clear that the Fed got the market reaction it may have wanted.

Derek Holt is a vice president in capital markets research at Scotia Economics, part of Scotiabank, in Toronto.