10 Observations to Begin the New Week

NEW YORK (BBH FX Strategy) -- The dollar is trading softer against the majors and emerging markets after Greece passed the latest austerity bill. The EuroStoxx 600 is currently 0.7%, with bank shares up 0.8%. Asian stocks are also higher, with MSCI Asia Pacific up 0.6%.

1. The approval by the Greek parliament of the latest austerity package now shifts the focus to the Eurogroup meeting of finance ministers on Wednesday for their support. The new austerity proved too much for the Greek government and a cabinet reshuffle is needed. Political pressure will mount to set a date for the elections. The successful Greek vote helped the foreign currencies, but the yen and Swiss franc, recover from the pre-weekend slide.

2. With the European Central Bank focused on liquidity provisions (another three-year Long-Term Refinancing Operation in two weeks and new collateral rules), and some data suggesting eurozone contraction is not accelerating, a rate cut is unlikely next month. Mario Draghi himself offered a small clue. He previously said there were "substantial downside risks," but last week he dropped the "substantial" to say that there were "downside risks."

3. U.S. economic data reported last week points to a sharp upward revision in the fourth quarter when it is released later this month (Feb. 29). The BEA had assumed that wholesale inventories rose $17 billion in December and last week we learned they rose by $56 billion. The inventory build-up may not dampen Q1 growth prospects, but instead are a recovery from the drawdown in Q3. The trade figures may also be worth a couple tenths of a percentage point. Q4 GDP may come in 3.2% or a little higher after the preliminary estimate was for 2.8%.

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4. U.S. data in the coming days is expected to show that the growth momentum has been largely sustained here in Q1. Retail sales and industrial production figures will be robust for January while the Empire and Philly Fed surveys will give evidence that the momentum carried into February.