It appears that while currency markets have taken the recent concerns about Greece in its stride the same cannot be currently said for equity markets, which suffered large falls yesterday and look set to open on the back foot once again this morning.
Yesterday’s falls were particularly sharp on Italian and Spanish stock markets with banks taking the brunt of the punishment, as concerns about contagion in the European banking system weighed on the weakest parts of the system.
With the next pressure point coming up later today with the deadline for the €1.5bn repayment to the IMF likely to pass without payment, attention is now shifting to the likely next steps that the ECB might take with respect of the ELA. If non-payment were to happen, which seems likely then Greece would simply be in arrears, not default, despite Christine Lagarde’s earlier claims to the contrary.
In a sign that battle lines continue to be drawn EU leaders have turned Sunday’s proposed referendum into an in/out vote on Greece’s position in the euro, when it is clearly about the creditors proposal, but given that polls appear to suggest a majority of the Greek population would prefer to stay in the euro, it suits the narrative of the EU to peddle that particular line.
In fact EU Commission President Juncker strayed a little too far into the realms of bad taste yesterday, urging the Greek population not to commit suicide by voting No, which in a country that has seen suicides soar as a result of EU policies, was crassly insensitive, and could well turn out to be a massive own goal, if the vote is indecisive. Maybe that explains last night’s late move to make a fresh attempt at trying to reach a deal by the EU Commission President, but in any event the deal was rebuffed by the Greek PM, with the only concession appearing to be on VAT for hotels being held down at 13%, instead of raised to 23%.
Whatever the rights and wrongs of the Greek government’s position, what is playing out here is clearly a last throw of the dice in a high stakes game of chicken, with Greek Prime Minister Alexis Tsipras appearing to hint that he and his government would step down if Sunday’s referendum went against them.
That still appears the likely outcome if opinion polls are anything to go by given that Syriza’s mandate was to end austerity, but keep the euro, two mutually incompatible goals, but that still doesn’t solve the problem of a Greek economy that is on its knees, while EU leaders engage in political ideology in an attempt to save their flawed currency, without any thought as to the damage their policies are doing to the fabric of Greek society.
While the headlines in Greece will continue to hog the headlines, this week we also have some important economic data from the UK, as well as unemployment data from Germany, EU and Italy, as well as the latest June EU inflation data.
Given some of the recent positive adjustments to some of the March numbers it would be surprising if today’s final revision of UK Q1 GDP weren’t revised upwards to 0.4%, indicating that after a slow start to the year the economy may well remain fairly steady, if slightly unspectacular.
The latest unemployment numbers from Germany are expected to continue to decline in June with a 5k reduction expected, while the rate remains at 6.4%, one of the lowest in Europe.
Italian and EU unemployment for May are expected to remain high at 12.3% and 11.1% respectively, while the latest EU CPI numbers for June are expected to dip back slightly from the previous 0.3% to 0.2%.
EURUSD – a very short lived move to 1.0960 early Monday has seen the euro rebound strongly suggesting that there is more life in the current rebound off the recent lows than originally thought. The failure to hold below the 50 and 100 day MA suggests we could see a move back towards the recent highs above 1.1400.
GBPUSD – continues to find support around the 1.5680 level, with only a break targeting a move lower towards trend line support at 1.5465, from the 1.4565 lows. We need to get back through 1.5820 to stabilise.
EURGBP – despite making a marginal new multi-year low at 0.6995 on Monday the subsequent rebound suggests that we could well head higher towards 0.7220 area. This key day reversal suggests further downside to be limited. Only a break below 0.7000 could well open up the 0.6920, the November 2007 lows.
USDJPY – having drifted lower the next support sits at 121.80 with gap resistance at 123.30 from Friday’s close. We need to push above 124.50 to suggest a return towards the 125.85 highs. A break below 121.80 suggests further losses towards 120.85.
Equity market calls
FTSE100 is expected to open 27 points lower at 6,593
DAX is expected to open 79 points lower at 11,004
CAC40 is expected to open 28 points lower at 4,841
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