End of European support program for Greece, Greek payment to IMF ?

•     EUR recovers, leads G10 currencies over the last 24 hours

–    Fed funds rate expectations retreat on thoughts that Greek crisis may restrain Fed

–    Expectations of a successful  “yes” vote cause some optimism

–    Spread between US and German bond yields narrows

–    Some investors may be optimistic about the prospects of a Eurozone without Greece

•     CAD and NZD were the only G10 currencies to fall vs USD

–    Oil prices fell as it started to look more likely that Iran would work out an accord over their nuclear program, paving the way for further exports

–    ANZ business confidence index falls to the lowest since March 2011 (immediately after big earthquake in Christchurch) while business activity falls to lowest since June 2012

•     Focus today:  End of European support program for Greece, Greek payment to IMF

–    What will the IMF’s reaction be when they don’t pay? Stay tuned!

•     Today:

–    Eurozone: Flash CPI for June; decline likely after yesterday’s fall in German CPI. Eurozone unemployment for June. German retail sales for May, June unemployment

–    UK:  3^rd estimate of Q1 GDP expected to be revised up = GBP-positive

–    Canada: Monthly GDP for April expected to accelerate = CAD-positive

–    US: S&P/Case Shiller house price index for April; Chicago PMI & Conference Board consumer confidence index for June

Greece calls referendum on creditors’ proposals, shuts banks

•     Greece calls referendum on creditors’ proposals, shuts banks

–    Referendum will be held 5 July; banks to remain closed at least until then

–    Government urges the people to reject the proposal! I expect though that they’ll say “yes,” but you never know – pride is a big motivating force in international relations

•     EU & IMF lose patience with Greece, refuse to extend bailout

–    Greece will exit from its bailout program on Tuesday, probably won’t be able to make payment to IMF as scheduled = will fall into arrears (not default)

•     ECB to maintain ELA at current level but not expand it

–    Trying to remain neutral:  they aren’t pulling the plug, but they aren’t increasing their help, either. But will “use all the instruments available” to keep markets stable

•     Greek exit from Eurozone would be disaster as it would introduce FX risk into the euro for the first time

•     Today:

–    Eurozone: German CPI for June expected to slow on yoy basis = EUR negative?

–    US: Pending home sales for May

•     This week:

–    Tuesday: Spotlight on Greek payment to IMF. UK:  final estimate of Q1 GPD

–    Wednesday: Japan tankan report; US ADP employment report

–    Thursday:  June nonfarm payrolls expected @ 225k = USD-positive. Swedish Riksbank meeting likely to keep rates on hold

–    Friday:  final service-sector PMIs for June

Greek talks still make no progress

•     Greek talks still make no progress

–    Same problems as yesterday

–    Finance ministers told to find some solution tomorrow – good luck!

–    Missing the 30 June IMF payment wouldn’t be considered “default,” technically – that would be 20 July EUR 3.5bn payment to ECB. That’s the real “drop deadline.”

•     Greek crisis could affect EUR/CHF

–    EUR/CHF is sensitive to Greek tensions – failure to pay IMF may send funds flowing out of EUR and into CHF

•     Japan inflation slows further in May

–    As impact of April 2014 hike in consumption tax fades further, inflation slows further

–    Headline inflation slows more than core, showing that it’s not just due to cheap oil

–    BoJ will eventually have to do more to push up inflation = JPY-negative

•     Today:

–    Eurozone: EU leaders end their two-day summit. Indicators:  Eurozone M3 for May, French consumer confidence for June

–    UK:  BoE Gov. Carney speaks

–    US: final U of M consumer sentiment for June

Creditors reject Greek proposals; talks to resume today

•     Creditors reject Greek proposals; talks to resume today

–    Creditors say Greek proposals rely too much on tax increases, which can impede growth, rather than spending cuts & structural reforms, which can boost growth

–    Talks will resume today, but ruling SYRIZA coalition didn’t like the original proposals, so it’s likely to like any new proposals that meet the creditors’ requirements even less

–    Greek PM Tsipras will have to get approval by Sunday night, otherwise it may be difficult to get the money in time to pay the IMF

–    Without agreement Sunday, they may have to impose capital controls and Greek banks may not be able to open on Monday

•     EUR largely unaffected, however

–    Stock markets were down, but EUR was generally stronger!

–    USD is moving on expectations for Fed policy now

•     Today:

–    Eurozone: Resumption of talks between Greek PM Tsipras & creditors will be the focus of attention, along with the start of the two-day EU leaders’ summit. Summit will also discuss UK demands for reform of EU as well as Greek issue.

–    Indicators:  German Gfk consumer confidence for July

–    US: Personal income & spending for May. Both forecast to accelerate = USD-positive

–    Speakers:  SNB President Jordan

Greece not over yet...

•     Optimism over Greece means monetary policy divergence returns as driver of FX

–    Market now discounting successful resolution of Greek drama – Greek stocks up 6.1% yesterday, bank stocks up 10.4%

–    Focus now back on Fed and likelihood of first rate hike in September

–    Better-than-expected US new home sales, continued recovery in core durable goods orders suggests US economy still expanding

–    Fed Gov. Powell says he sees 50-50 chance of hike in Sep, maybe another in Dec

•     Greece not over yet, though

–    Some SYRIZA members object to harsh new measures that include further cuts to pensions, rise in taxes for people & companies

–    Will vote on measures over the weekend. Greek parliamentary approval is necessary

•     API stats show large drawdown in inventories; oil rallies

–    Boosts commodity currencies, with AUD, NZD, CAD and RUB gaining

–    Subhead

•     Today:

–    Eurozone: German Ifo survey expected to be soft, could further weaken EUR; EU finance ministers hold emergency meeting in evening to discuss Greece

–    US: 3^rd estimate of Q1 GDP expected to be revised up = USD-positive

Greece finally gets serious, presents workable proposals

•     Greece finally gets serious, presents workable proposals

–    New proposals go a long way towards meeting creditors’ demands, but not 100%

–    Still much work to be done – Lagarde says proposals “still lack specificity”

–    Greece still insists creditors must reduce the country’s debt burden – that may be taken up after an agreement is reached

–    Agreement must pass Greek parliament before being submitted to Bundestag, but some members of SYRIZA coalition still resisting concessions

–    NEW DEADLINE:  Eurogroup & EU leaders’ meeting on Thursday

•     EUR-denominated assets rally, but EUR weakens

–    Eurostoxx index up 4%, Italian bonds rally sharply

–    But EUR is being used as a funding currency, so it weakens in risk-on environment

–    Also investors are hedging their currency exposure = selling as they buy stocks

–    USD rallies vs most currencies as existing home sales beat expectations

•     Today is PMI day

–    China official manufacturing PMI rises to 49.6 from 49.2 = beats expectations but remains below 50. Economy is stabilizing but not yet growing. AUD, NZD weaken

–    Eurozone: Manufacturing PMIs expected to remain unchanged or increase a bit, while service-sector PMIs expected to decline = not likely to be enough to boost EUR

–    US: Market PMI expected to accelerate = USD-positive. Durable goods orders for May expected to fall, but ex-transportation expected to rise at same pace as April = neutral. New home sales for May expected to rise = could be USD-positive

Greece is the word!

•     Greece is the word!

–    Greek PM Tsipras to meet leaders of the 3 creditors today

–    EU leaders’ summit today to present Tsipras with ultimatum:  either accept reforms or prepare for default. Greek papers say he’s ready to accept a compromise

–    ECB will meet today to discuss further emergency aid for Greece

–    If they don’t reach agreement, Tuesday will be a “difficult day”!!!! Expect either a bank holiday or capital controls

–    If they do reach agreement, I would expect Tsipras to call a referendum

•     Market either not expecting default or not worried about it

–    Most Greek debt is held by public sector, not investors or banks = no contagion

–    Only sign of unease is in the German version of VIX index as investors hedge

•     Today:

–    US: Existing home sales for May forecast to have increased.

•     This week:

–    Tuesday: PMI day globally, starting with China as usual. China expected to remain under 50, Eurozone manufacturing PMIs expected to decline a bit. US durable goods.

–    Wednesday:  German Ifo survey for June could be weak = EUR-negative; 3^rd estimate of US Q1 GDP expected to improve = USD positive

–    Thursday:  US personal income & spending for May both forecast to accelerate = USD-positive

–    Friday:  End-of-month data from Japan including CPI expected to decelerate further

Emergency EU summit called after no deal at Eurogroup

•       Emergency EU summit called after no deal at Eurogroup

•      EU leaders will hold an emergency summit on Monday ahead of the already planned for Jun.25-26 meeting. This comes after Eurogroup failed again to bridge the gap between Greece and its creditors.

•      Talks now move to the highest political level.

•      Without a deal, Greece is likely to default as it has a crucial payment due to the IMF end of June and the four months extension of the rescue program expires.

•      ECB will hold an unscheduled call to discuss ELA available to Greek banks as savers speed up withdrawals (ECB raised Greece’s ELA level by 1,1bn on Wedn).

•      Heightened concerns that Greece may need to introduce capital controls as the banks may not have enough liquidity to open on Monday. This could be EUR-negative.

•      DAX futures, Eurostoxx 50 are also likely to come under increased selling pressure. 

•      BoJ remains on hold, as expected

•      Maintained its positive view of the economy.

•      October still seems the most likely time for any further stimulus, in our view.

•      The Bank will also reduce the number of its policy meetings from 14 to 8, starting from Jan. 2016, and issue more frequently its long-term economic outlook and prices.

•      Today:

•      Eurozone: Current account balance for April. Usually not major market mover. 

•      Canada: CPI for May. The market is likely to focus on the core rate, which is expected to decelerate somewhat. This could be CAD-negative. 

•      Speakers: San Francisco Fed President John Williams, Cleveland Fed President Loretta Mester and Norges Bank Governor Oeystein Olsen. 

Fed officials still on track for a rate hike

•      Fed officials still on track for a rate hike

•      Fed Chair Yellen repeated that the path of rate increases to follow are more important than the timing of the liftoff. The timing will depend on the data and the increases are likely to be gradual.

•      FOMC members lowered their interest rate forecasts. However, the median “dot” for 2015 stayed at 0.625% consistent with two rate hikes.

•      As for the economic projections, economic growth and unemployment rate were both lowered, while consumer prices remained unchanged from the previous forecasts.

•      USD weakened on the lower interest rates forecast, lower economic projections and no clear sign of the timing of the first rate hike.

•      We believe that September is still the most likely lift-off date, but the likelihood may have declined a bit.

•      Overnight, Kiwi plunged after New Zealand’s GDP for Q1 slowed by more than expected

•      Eurogroup meeting on Greece

•      No new proposals are expected at this meeting. Thus it could be a short one.

•      In the event of a deadlock, an emergency EU leaders’ summit will be called over the weekend.

•      Today:

•      Switzerland: SNB meeting. The forecast is for the Bank to remain on hold.

•      Norway: Norges Bank meeting. The expectation is for 25bps rate cut. This could be NOK-negative.

•      UK: Rentail sales for May are expected to fall a bit, a turnaround from the previous month. GBP could weaken a bit.

•      US: CPI for May. Coming a day after the FOMC meeting and the new projections, a strong surprise is needed for investors to change their view on the inflation outlook.