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The Marketplace - July 7th 2015
07/07/2015
Following yesterday’s meeting between Angela Merkel and Francois Hollande on the implications of the Greek referendum result, an emergency meeting of Euro-area finance ministers is scheduled for noon today followed by a Euro-area leaders’ summit at 5pm.
Greece
The price action continues to reflect the market's relative resilience, not panic. Despite the prevailing "NO" vote on Sunday in Greece's referendum. Put another way, the referendum has not altered the fact that the ECB remains ready to "do whatever it takes". Clearly however, event risk remains high especially in light of yesterday's ECB decision to keep the ELA provision unchanged albeit under different collateral rules and given today's euro group meeting.
Separately, analysts do not rule out further downgrades of Greece, noting Moody's has the sovereign on "review for downgrade". However, as long as belief in containment mechanisms holds, the scope for significant market contagion should continue to be limited.
French President Francois Hollande hosted German Chancellor Merkel in Paris for talks regarding the outcome of the Greek referendum on Sunday. Following their talks they held a press conference.
Hollande specified that “the door is still open to talks for [Greek PM] Mr Tsipras to make serious proposals so that this wish for Greece to remain in the Eurozone can be realised”
He warned that “there’s not much time left. It’s also a matter of visibility and credibility”, but highlighted that “France and Germany respect the vote of the Greek people” He ended his comments by reminding the audience that “Europe is not just a monetary and financial construction”.
Chancellor Merkel was arguably slightly harsher in her tone. She agreed with Hollande that the “door is still open” but insisted that Greece must present new proposals this week, as “there is no new basis for a new [ESM] programme yet”. “We must respect the vote of the Greek people but we must also respect the other 18 member states. That's a matter of democracy”
U.S. ISM Healthy
The ISM non-manufacturing index remained in a healthy range in June at 56.0. The important business activity and new orders indexes remained solid at 61.6 and 58.3 respectively. This measure of activity has been in the same range, consistent with above trend growth, all year. Even when special factors dampened growth in the first quarter, businesses remained optimistic. Analysts see the ISM index as a barometer of underlying growth. It remains robust and supports the view of growth in the 3% range in coming quarters.
Today’s Key Data;
UK Manufacturing Production m/m – Many will be keeping a keen eye on these figures after a fall last month, coming 0.5% under consensus at 0.1%. Consensus is for it to slightly increase up by 0.1%.
US Trade Balance - Economists estimate the US trade deficit widened to $42.7 billion in May from $40.9 billion in April. From Barclays: "Trade data have been volatile in recent months as a result of the West Coast port strikes that were resolved in mid-February. Imports from the Asia-Pacific region, the primary trade flow through California ports, plunged in January and February before surging in March as backed-up container ships were finally unloaded. At the same time, exports have softened over the past six months on weak international demand and the stronger dollar."
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