June 16, 2015

Markets Today: Greek nonchalance

Given the news that greeted the incoming Asia-Pacific market on Monday morning – that talks between Greece and her creditors in Brussels on Sunday had collapsed after just 45 minutes

Given the news that greeted the incoming Asia-Pacific market on Monday morning – that talks between Greece and her creditors in Brussels on Sunday had collapsed after just 45 minutes – we are probably not alone in thinking that the single European currency would have been lower than Friday night’s close when we walked in this morning.  Not so. EUR/USD sits slightly up on the day (+0.13%) albeit eclipsed by the AUD (+0.45% to 0.7765) and GBP (+0.26%).

Whether complacency/belief an 11th (or 13th?) hour political deal will be struck on Greece (isn’t it always?) or that Greek default and potential Grexit will be a good thing for the rest of the Eurozone, is hard to say. What we can say is that other markets are not behaving with quite the same nonchalance; European equities had another bad day (Eurostoxx 50 -1.85%), US Treasury yields are lower vs. Friday night’s close, Bund yields are slightly lower and peripheral Eurozone bond yields have blown out (Greece by 37bps at 10 years, other Eurozone peripheral bonds by between 14 and 21bps).  And EUR FX volatility, which very often gets driven by spot market moves, not vice versa, has risen to its highest levels since mid-Jan, at 3-months now 50% higher than its Feb. lows.

Helpful to the cause of relative EUR stability overnight has been confirmation from the ECB that it is not currently minded to curtail Greek banks’ access to the Emergency Liquidity Facility  – implying this will ultimately be a political decision – and Standard & Poor’s saying that neither missed payments to the IMF at month end nor to the ECB next month, would constitute so called ‘Selective Default’ (this because the debt in question pre-dates the 2012 debt  restructuring agreement – the ‘PSI’).  The discouraging news is that Greece remains adamant it will not budge on pension cuts, and the IMF that it must, while conciliatory gestures from the IMF on debt relief for Greece remains taboo (publicly at least) in German circles. Conceding on pensions may bring down the Greek government, while conceding on debt relief will greatly damage Angela Merkel’s credibility among her own electorate. Neither side look set to blink, and the chances of a political breakthrough at Thursday’s Euro Group Finance Ministers meeting currently looks slim.  We still see a big risk of higher volatility levels ahead, and remind readers that at the peaks of the Greek Eurozone crises in 2010 and 2011 both the AUD and NZD actually fell against a falling Euro.

Elsewhere overnight US data has been mixed, with industrial production disappointing (-0.2% vs. +0.2% expected) as too the Empire manufacturing survey (-1.98 from +3.09 and +6.0 expected). Market reactions were partly offset by stronger than expected housing data. The NAHB Housing Market Index jumped to 59 from 54 and above the 56 expected. This left the US dollar slightly softer overall and helps explain the AUD’s stronger showing.  On that, there was nothing much for markets in last night’s speech or Q&A from RBA assistant governor Chris Kent, which focussed on the transmission channels and effectiveness of monetary policy.  Some are working well, some less so, while the currency is not doing as much work to help economic rebalancing as hoped.  His comments are consistent with an ongoing ‘easing bias’ but a fairly high hurdle to acting (again) upon it.

Coming Up

07:55 AEST sees a speech and panel participation by Guy Debelle, Assistant Governor (Financial Markets), at the “Launch of Financial Integration in the Asia Pacific: Future of Australian Financial Services” (Sydney).

The RBA Minutes of this month’s Board meeting are also being released today (11:30AEST.  While the market always pays attention the main headlines, Stevens’ speech this week (and now Kent’s) has provided a good dollop of policy guidance, confirming that an easing bias of sorts still exists.

Data-wise, there is the weekly ANZ-Roy Morgan consumer confidence and motor vehicle sales (which may be interesting following the May budget’s $20,000 investment tax allowance-note this is yet to be legislated).

Offshore, we get the latest survey of financial analysts’ views on Germany courtesy of the ZEW survey and in the US, May housing starts and where a modest correction from April’s 20% surge is expected (median forecast -3.3%).


On global stock markets, the S&P 500 was -0.50%. Bond markets saw US 10-years -3.59bp to 2.36%. On commodity markets, Brent crude oil -1.97% to $63.88, gold+0.6% to $1,185, iron ore -1.4% to $64.25. AUD is at 0.7766 and the range was 0.7704 to 0.7777.For more market prices, please see p.2 of the pdf).

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