Greek private sector debt talks have taken a backseat to crunch talks on the next aid tranche. It appears that Greece’s national unity government has failed to reach an agreement on further savings to satisfy the Troika’s demands. Until now, Athens’s requests to have the terms of the next bail-out package eased have fallen on deaf ears amongst the Troika, and the situation is being compounded by a lack of cooperation between Greek politicians.

All eyes in Asia are now turning to Australia for the release of retails sales figures at 11:30 Sydney time. During the second half of last year we witnessed a resounding slowdown in retail growth, with every month from July to October printing negative and November coming in flat. We expect that December’s figure will be have breached positive territory but only marginally by around 0.2%m/m. In our opinion, given the relatively weak levels of consumer confidence and economic stability, the RBA’s twin rate cuts last year will not have had a huge impact on the data.

Themes:

Papademos said after talks that the parties involved have agreed on additional spending cuts to the tune of 1.5% of GDP, made possible by cuts to wages and non-labour costs. A PASOK spokesman stated that officials in Athens have until midday on Monday local time to submit their response to Troika proposals.

US payrolls for January surprised on the upside on Friday, coming in at 243K (cons. +140K). Furthermore, the unemployment rate fell to 8.3% against expectations of 8.5%. The market took this to mean that the Feb is less likely to engage in QE3 in the near-term

Reports are suggesting that the sticking point between Greek politicians is that the opposition is not willing to agree on more austerity leading to a recession, which could cause Samaras and his opposition party to withdraw their support. If they do, it would almost certainly lead to a Greek default on March 20.

IIF Chief Dallara is currently in Athens finalising PSI talks, with Greek officials and private sector debt holders reportedly close to an agreement.