If Greece couldn’t manage the €750 million payment in May without raiding the reserve account at the IMF, it seems likely that they will struggle to make the even larger payments in June. No European help is forthcoming in the meantime. Therefore, either Greece agrees a deal and gets EU aid, or it defaults on its obligations come June. Even if Greece were to approve a deal, it is difficult to predict what becomes of the country in six month time. Would Greece reform and find itself on a path to renewed growth or would it sink further laboring under stringent measures and eventually decide to exit the Eurozone. The US recovery that began in Q3 2009 has seen US GDP expand at rate, well below that of previous recoveries. A slow recovery can be knocked off its perch very easily and the US Federal Reserve will be very cautious on signaling monetary tightening. The Q1 GDP print in Eurozone was at an encouraging +1.6% quarter-on-quarter, with stellar performances from France and Spain. In what is becoming a habit, last week China’s People’s Bank of China cut benchmark one-year interest rates once again and more measures to liberalise rates were announced. Equities are still a buy. If the Euro continues to appreciate, then moving from Eurozone overweight to equal weight will be required. Japan may take a breather, but there is more to come.
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