Greece: confusion and disarray

•     Greece: confusion and disarray

–    ECB surprises everyone by increasing the haircut on Greek govt collateral; banks to remain closed for at least two more days. Increases pressure on Greek govt

–    Greece to make proposal today based on previous EC proposal, but since Greek economy has deteriorated, this probably won’t go far enough. Greek paper reports that 16 of the other 18 Eurozone countries want Greece out. Things look grim.

–    EUR likely to fall further if Greece exits; high-beta commodity currencies too

•     RBA keeps rates unchanged, as expected

•     Chinese stocks fall further despite govt support measures

–    Chinese stocks off over 30% from peak in just 3 weeks or so

–    Govt suspended IPOs, central bank provides funds for margin trading, etc. but no luck

–    Fall hits consumer confidence, show underlying weak economy = bad for commodities

•     Oil prices collapse on China, Iran deal, continued high US supply

–    Bad news for commodity currencies – NOK, CAD, RUB down sharply

•     Today:

–    Eurozone: EU leaders’ emergency summit meeting on Greece; INDICATORS:  German industrial production for May

–    UK:  Industrial production for May expected to fall mom but accelerate yoy

–    US: JOLTS job openings in May expected to be a bit lower; trade balance

Greece votes “No” by a substantial margin

•     Greece votes “No” by a substantial margin

–    PM Tsipras will now try to negotiate, but creditors will have to make an even harsher offer than before as the country’s economy has deteriorated

–    Since voters didn’t approve the previous offer, he can’t accept a harsher one

–    He may have painted himself into a policy corner with only Grexit as the way out

•     ECB likely to stay on hold while politicians talk

–    Eurozone summit to be held on Tuesday

–    ECB will probably keep its emergency funding to Greece stable while politicians talk

–    Eventually Greece will either capitulate or to go back to the drachma. I think drachma.

•     Market isn’t expecting any big trouble; €/$ is still in same range

–    Most sensitive pairs: EM or commodity currencies, XXX/JPY

•     Today:

–    Eurozone: German factory orders for May

–    Canada: Ivey PMI could bring a positive surprise

–    US: Labor market conditions index for June

•     This week:

–    Tuesday:  RBA meeting; expected to stay on hold. UK IP for May

–    Wednesday:  Minutes of June FOMC meeting

–    Thursday: China CPI & PPI; BoE policy meeting

Friday:  Canada unemployment

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