Greece Is Front And Center For Markets

Currency markets will be waiting next week for any event or announcement that could mark a new chapter in the sovereign-debt crisis engulfing Greece.


Market participants are also waiting to see if the Federal Open Market Committee in the U.S. will provide any clues to further monetary stimulus on Tuesday. Housing-related data are also scheduled for release, potentially providing insight into the state of the economy.

With the European Union finance ministers' conference ending on Saturday, any announcements emerging from it will "set the tone for markets next week," said Greg Anderson, senior foreign exchange strategist at Citigroup in New York.

Greek Finance Minister Evangelos Venizelos will hold a teleconference with representatives of the country's creditors on Monday, finance ministry sources said Friday.

The troika--the European Union, the International Monetary Fund and the European Central Bank--broke off talks with Athens earlier this month after they were told by the government that no new measures could be adopted to plug a EUR2 billion revenue shortfall. The troika's decision will impact when Greece gets its next bailout check.

"We'll be watching for any tape bombs out of Europe," said Todd McDonald, head of foreign exchange trading for the Americas at Standard Chartered in New York.

The market's reaction to the Fed's announcements on Tuesday is important as well.

"The market would be disappointed if there's any deviation from a twist announcement," McDonald said, referring to the so-called "Operation Twist," by which the central bank is expected to lower borrowing costs by pushing down long-term bond yields.

Wall Street is counting on the Fed to at least hint at what it might do next to ease the strain in the economy. The central bank could lighten its load of short-term bonds and increase its holdings of longer-dated securities. After all, Fed chairman Ben Bernanke has listed lengthening the maturity of the Fed portfolio as an option in public comments.

Minutes of another central bank's meeting - the Bank of England's latest - will reveal on Wednesday which way the bankers are leaning on stimulus packages for that country. The Monetary Policy Committee voted at the meeting to keep its key interest rate on hold at a record low of 0.5% and its quantitative easing program frozen at GBP200 billion.

As for the U.S. economy, pointers will emerge from the array of housing data to be released, including housing starts for August on Tuesday, existing-home sales for August on Wednesday and July's home prices on Thursday.

Still, the focus is mostly on Greece and everything that needs to be done to keep money flowing in the global economy. Thursday's announcement by the ECB that it is working in concert with four other central banks to boost dollar funding liquidity created a pop that barely lasted a day.

"Though a bold stroke, many market observers rightly conclude that this action is just a palliative that makes the patient (EU banks) feel a bit better without doing anything to cure the sovereign/solvency/fiscal issues that have the funding markets where they are to begin with," wrote RBC analysts in a note.

Investors will watch warily for any signs that liquidity, especially in the short-term markets, is drying up as fears about Greece swell, recreating conditions from the financial crisis of 2008.