ECB prepared to tackle any Greece contagion

Market movers today

• We expect German ZEW expectations for April to decline slightly after rising substantially since October last year on the back of ECB stimulus and better economic growth momentum. Our forecast also reflects that the share of respondents who believe in either further improvements or worsening is now looking rather stretched.

• In Scandi markets attention turns to Sweden that will publish unemployment data. For more on Scandi markets see page 2.

Selected market news

Greece continues to be in the limelight after especially the IMF and the ECB over the weekend tightened the rhetoric towards the country ahead of the upcoming Eurogroup meeting on 24 April.

Yesterday, Greece responded to the pressure as Prime Minister Alexis Tsipras ordered local governments to move their deposits to the central bank. The cash-strapped Greek government is urgently in need of cash for salaries, pensions and a repayment to the IMF. According to media reports the move should raise about EUR2bn in cash. However, for the market the move was seen as yet another indication of how desperate the Greek government is at the moment and that time is running out for Greece as IMF put it over the weekend. Greek government bond yields rose with 3y yields now above 28%. This is the highest level since the debt restructuring in 2012 and Greek CDSs are now pricing a more than 80% probability of a default within five years.

However, Greece was not able to spook financial markets yesterday. Global equity markets recovered strongly after the sell-off on Friday and peripheral bond markets did not continue to underperform Germany.

The positive sentiment probably reflects that global monetary easing continues unabated with China being the latest major country to join the bandwagon after the cut in the reserve requirement over the weekend.

However, there is certainly also a market feeling – which we think is correct – that if things get out of control in Greece. policymakers including the ECB will respond swiftly to support markets. The ECB was in fact doing its best to calm markets yesterday. ECB member Nowotny said that ‘one should not overestimate the consequences if Greece exits the euro’ and ECB’s Constancio said in the European Parliament that Greece might not necessarily have to leave the euro even if it defaults on its debt.

NY Fed’s Dudley also supported market sentiment when he once again spoke in a dovish tone yesterday but still the market brought forward the timing of the first hike slightly from Friday. The market is now pricing a 60% probability of a first hike in September. We continue to expect a September hike.