Market News & Insights
3 July 2015

Another weekend another Greek tragedy on the horizon

EUR/USD 1.111
GBP/USD 1.5615
GBP/EUR 1.4057 (0.71145)
EUR/CHF 1.0469
GBP/CHF 1.4699
GBP/AUD 2.0661

As we enter another critical weekend market polls suggest Greece is divided right down the middle heading into Sunday’s referendum on European bailout proposals, portending even more upheaval for the stricken nation. A poll commissioned by Bloomberg News showed 43 percent intend to vote “no” to reject the austerity demanded by creditors in exchange for financial aid; 42.5 percent back a “yes” to accept the conditions, the survey of 1,042 showed. The survey suggests that the plebiscite may not resolve anything as the nation’s economic and political crises deepen. While the poll showed more than four in five Greeks want to stay in the euro, the nation’s crippled banks and Premier Alexis Tsipras’s isolation from other European leaders have thrown into doubt the country’s future in the currency union. Support for the “no” side has decreased since last Saturday, when 52 percent of voters said that was their choice, according to the poll. Support for “yes” rose as the bank holiday that began on Monday began to suffocate commerce, climbing from 26.5 percent. The poll also showed 81 percent believed remaining in the euro offers the best prospects for the future, a number that has also climbed since last Saturday. Prime Minister Alexis Tsipras has urged Greeks to reject the “humiliating” terms offered last week by international creditors in a deal that is no longer on the table, and accused lenders of “blackmail” by withholding credit. As discontent has mounted over long queues for pensions and at cash machines, Tsipras promised voters that banks would reopen as soon as the government clinched a fresh loan from its euro zone partners. Credit ratings agency Fitch said the banks were already effectively bust and would go to the wall within days unless the European Central Bank increases emergency liquidity assistance to help them cope with a wave of withdrawals. On Thursday, the International Monetary Fund warned that Greece faces a huge financial hole regardless of the outcome of the referendum. Days after Athens defaulted on an IMF loan repayment, the Fund said Greece needed an extra 50 billion euros over the next three years, including 36 billion from its European partners, to stay afloat. It also needed significant debt relief. On Sunday it will fall to the Greek people to decide an issue that their government was unable to settle in months of acrimonious negotiations with their European partners. In such a family orientated country I believe the severity of the situation really hit home seeing old frail pensioners queuing up for hours in the sweltering heat for cash which may have turned this tide. Logic may just prevail when it’s taken out of the politician’s hands.

Staying in Europe the Eurozone could be preparing to beef up stimulus measures in response to further turmoil in Greece. The ECB yesterday raised the number of organisations whose debt it could buy. On the data front we have Spanish, Italian, French and German services PMI out where we expect rises in activity in the core.

Stateside the US employment data disappointed yesterday. The headline grain of 223k was only slightly less than expected, but the job growth in April and May was revised lower by 60k (almost evenly divided). The most disappointing part of the report was the decline in the participation rate new cyclical low of 62.6% from 62.9% and the lack of increase in the monthly average of hourly earnings.