GBP/EUR 1.4020 (0.7133)
Hopes for a Greek debt deal took a turn for the worst yesterday as creditors and the Greeks rejected each other’s deal proposals. The probability of a near term agreement is not high as EU officials said yesterday’s talks yielded little in the way of progress and no break- through was in sight. Creditors are demanding for more spending cuts, exemptions on VAT to be abolished and a full reform of the pension system to deliver a primary surplus. The Greeks are focussed on increasing taxes but doubts persist within the creditor group around the Greeks ability to collect existing tax, let alone new tax measures.
Talks have resumed already this morning with Greek PM, Tsipras, currently in talks with IMF chief Lagarde, ECB President Draghi and EU Commission President Juncker. Later in the day, the Eurogroup of EU Finance Ministers meet ahead of an EU Leaders’ summit this evening. Given the amount of deadlines that have passed so far, I’m reluctant to call a firm line in the sand. However, it does appear that talks need to deliver a resolution by Saturday at the latest to allow sufficient time for a deal to be ratified by Greek and German parliaments and for the Greeks to receive the €1.6b it needs to repay the IMF on the 30th of June. Without a deal by the weekend, and with Greek depositors having withdrawn about 20% of deposits held with the nation’s banks this year, it is unlikely that Greeks banks will open on Monday without an agreement in principle.
Unsurprisingly, stock markets have opened lower this morning, with the Greek stock market initially off 2% and Greek banks down 5%. Although markets are currently staging something of a rally, most European stock market indices are still in negative territory and the EU Volatility index is up 1.75%, reflecting this uncertainty. However, currencies are little changed and with significant event risk surrounding the Greek debt deal, I would expect liquidity to be thin and ranges to hold until there is definitive news on a Greek debt deal.
Datawise, we have inflation and Purchasing Managers indices out from the US this afternoon. These releases are of medium importance and while they don’t have the capacity to move markets significantly, they will be monitored by market participants to provide additional information around current activity in the US economy ahead of the key September FOMC meeting. In Europe, the SNB Chairman Jordan speaks but any pronouncement will be overshadowed by the raft of meetings being held in Brussels.