July 10, 2015

Markets Today: Homework submitted, verdict awaited

“New Greek proposals received by Europgroup president Jeroen Dijsselbloem, important for institutions to consider these in their assessment”. So tweets Dijsselbloem’s spokesman Michel Reins.

“New Greek proposals received by Europgroup president Jeroen Dijsselbloem, important for institutions to consider these in their assessment”.  So tweets Dijsselbloem’s spokesman Michel Reins.

After some confusion over the deadline for the Tsipras government to submit its proposal for the consideration of first the institutions formerly known as the troika, and then Eurogroup Finance Ministers, Greece looks to have handed in its homework at least a couple of hours early.  Whether it needs to score 10/10, or 8/10 to be followed by more to-ing and fro-ing on Friday morning, remains to be seen. From what we can glean from a draft of the proposals seen by the one newswire (Market News) there could be sticking points on pensions (Greece proposes higher contributions, not cuts to entitlements) and VAT hikes on hotel in the islands (yes in the large islands, not so the small ones, apparently).

So while the mood music looks to have brightened a little in the past 12 hours or so, the EUR/USD rate has been unable to hold its tenuous grip on even the 1.11 level in European trade. This looks to be testament either to markets not yet rushing to judgment (doubtless very wise) or a view, with which have much sympathy, that any bounce on news come Monday morning of at least a handshake deal, is likely to be faded quite quickly.

One reason for the latter view is that a Greek deal that averts the risk of fresh market ructions (that we most definitely expect under a Grexit scenario) would remove one of the factors with potential to restrain the Fed’s willingness to lift rates as early and September.  On this we’ve had three Fed speakers crossing the wires in the past few hours. Known FOMC hawk Esther George reiterates her view that the Fed should implement modest rate rise ‘now’ in order to allow a more gradual pace of tightening later. Meanwhile arch-dove Charles Evans reiterates his long standing view that the Fed should hold off moving before 2016.  And thirdly, Fed Governor Brainard – who last month was bemoaning US dollar strength as a threat to the economy – said following a speech on regulation only that the Fed was watching Greece and China closely.

We’ve had the IMF overnight downgrading its 2015 global economic forecast (3.5% to 3.2%) led by the US. The latter is down to 2.5% from 3.1%. – its fourth cut in the past 12 month.  A year ago, it was projecting 4% growth this year. This obviously helps justify its claim for no Fed tightening this year. Markets have long since ignored IMF forecast revisions (or indeed its forecast at all. As one our London trader’s quips “don’t hire people to run the organisation from a country that can’t run itself”).

It’s been a good night for commodities, highlighted by a 9.9% jump in iron ore prices and 2-2.5% for oil. Alongside decent gains in European equity market and small rises on Wall Street, this has left the G10 commodity currency bloc (NOK, AUD, CAD and NZD) firmly at the top of the G10 currency scoreboard.  In the case of the AUD, this really just means that it has held the gains recorded in the immediate aftermath of yesterday’s better than expected local employment and unemployment data.

Coming Up

Greece-related headlines will doubtless be thick on the ground – or rather the screens – throughout Friday, alongside the obligatory observation of the non-functioning Chinese stock market.

We have a speech from Fed chair Janet Yellen to look forward to tonight. This is in Cleveland, Ohio, at 12:30pm NY time/5:30 London time (02:30 AEST Saturday).  Subsequent to this, Yellen appears twice next week’s in the semi-annual appearances to both houses of Congers formerly known as the ‘Humphrey Hawkins’ testimonies.

The subject of today’s speech is the US economic outlook.  It follows Wednesday’s June 16/17 FOMC minutes that shows some concerns regarding China and Greece starting to build, comments from San Francisco Fed President Williams that he still see two Fed rate rises this year and the various Fed official overnight largely re-stating entrenched positions.

We’d very much doubt Yellen will want to take markets any further off the scent of a 2015 commencement of tightening, but also doubt she’ll give any strong steer on one as early as September, all the more so given current external uncertainties.  We also hear from Boston Fed President Eric Rosengren (current non-voter, considered dovish)

Data wise, locally it’s just detail of May home loans (investment lending and owner-occupiers), Canada has its employment data, and in the US we just have wholesale inventories.


•           Bank of England leaves Bank Rate at 0.5%, Asset Purchase at £375bn.

•           US initial jobless claims 297k (275kE, 281kP).

On global stock markets, the S&P 500 was +0.20%. Bond markets saw US 10-years +10.91bp to 2.30%. On commodity markets, Brent crude oil +2.68% to $58.58, gold-0.3% to $1,160, iron ore +9.9% to $48.99. AUD is at 0.7456 and the range was 0.7393 to 0.7492.

For full analysis, download report:

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets