ECB rhetoric to overshadow Greek poll results

Markets are likely to look beyond last weekend's Greek election results and focus on comments from the European Central Bank (ECB) especially after the US extended its on-hold stance this month. 

Greece's ruling Syriza party won the recently concluded elections. While the fresh mandate provides some certainty that terms of the third bailout agreement will be adhered to, the government faces an uphill task to implement those tough measures. After exiting a six-year long recession, the economy expanded 0.8% last year, followed by 1.1% YoY rise in 1H15. Conditions in 2H however were far from conducive with shutdown of the banking system and capital controls in place. This might leave the economy hardly better off that last year, with output to shrink next year as most measures bite. 

Athens will meanwhile heighten calls for higher debt relief and write-offs. Reuters cited Eurozone officials suggested that Greece's annual debt-servicing costs might be fixed at 15% of GDP over the long term, to ensure this burden doesn't rise during periods of weak growth. 

As uncertainty over Greek politics eases, ECB is likely to be out in force to show its readiness to act to achieve its inflation target. Downside risks to inflation/ growth have risen in light of slower global growth and heightened volatility. Inflationary expectations have also moderated due to soft commodity prices, reflecting the markets' belief that deflationary risks remain. Recent sessions have also seen officials stress on the underlying divergence between the US and Eurozone policies, which has also helped to keep a lid on euro upmove. Expect more such dovish rhetoric to make the rounds until uncertainty over the US Fed-leaning lingers. On the data front, Sep advance PMIs are due today.