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Spain political landscape is changing rapidly. The rise of the 12-month old anti-establishment party of Pablo Iglesias, Podemos, is breaking the country two-party system. Lying behind voters support for Podemos is an austerity fatigue, but also the anger against the corruption of the two traditional parties, the socialists PSOE and, even more, the currently ruling rightist Partido Popular (PP).
The 19 February Eurogroup agreement lays the ground for continued financial assistance to Greece pending the approval of a list of reforms to be submitted by the Greek government today. It looks unclear how the Greek government will fund itself during the negotiations process; a further deterioration in the state cash position could require an increase in T-bills issuance as a bridging option.
The French housing market continues to gradually adjust downwards. But the trends differ between new-build and pre-owned. In the pre-owned sector, the number of sales is still high, at 700,000 units in 2014, down 13% on the highs of 2006-2007. Prices have seen a very measured fall, of 1% in Q3 and of a total 6% since the end of 2011. In new-build, however, the correction is marked, with a drop in sales and housing starts of around 35% relative to the 2006-2007 highs. This gradual adjustment should continue in 2015.
In spite of mounting pressure we believe that an agreement between Greece and its creditor countries will be achieved and we look at a 'Grexit' as a tail risk.The compromise should probably be a mix of maturity extension, more concessional rates, fiscal easing and structural reforms.Fiscal easing should favour rather than jeopardise the success of the Greek adjustment program by providing a reflationary impulse and improving debt sustainability.
The BoE remained on hold at its February meeting (Bank rate at 0.5% and programme of asset purchases at GBP375bn). The February Inflation Report (to be published on Thursday, 12 February) will be the main UK key event for markets next week. We expect strong positive revisions to the growth forecasts and substantial downward revisions to near-term inflation owing to the recent decline in oil prices.
Highlights: The Czech Republic, Slovakia and Hungary all have strong growth prospects for 2015. Russia is suffering a deficit of strategy… and confidence. The Central Bank of Egypt changes its monetary policy. The new devaluation of the CFA franc is unlikely. South Korea is lagging. Is country risk being properly evaluated in Latin America?
Edition February 27, 2015
Spain: Metroscopia opinion polls for El Pais (estimated votes)
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