Greece crisis: Focus remains on ECB's reaction to the missed IMF payment

Market Movers

• Greece remains at the top of the agenda. Today focus is likely to be on a) how creditors and ECB will respond to the missed IMF payment and expiry of the bailout programme and b) updated poll results on the referendum outcome.

• Spanish and Italian PMI figures. In Italy, both the manufacturing and service PMI have improved and suggest GDP growth continued to strengthen in Q2. In Spain, the recovery remains on track and we expect the PMI figures to continue to signal even stronger economic activity.

• We estimate an increase to 53.3 in the June US manufacturing ISM from 52.8 in May. Regional PMIs received so far generally suggest an uptick in the ISM index and with demand picking up, we believe we are past the bottom in the ISM. We will also receive the final release of the Markit US PMI.

• Scandi PMI surveys are due for release. For more on Scandi markets see page 2.

Selected Market News

Yesterday, a few hours ahead of missing the IMF payment, Greece asked for a twoyear bailout extension from the ESM. Eurogroup members held a teleconference last night discussing the request but this ended without a result. Reportedly the Eurogroup will reconvene again this morning to discuss the Greek proposal.

Crucially the ECB is scheduled to hold a non-monetary policy governing council meeting today and there has been some speculation that the ECB, which has effectively kept Greek banks afloat in recent months by means of the Emergency Liquidity Assistance (ELA), may consider tightening the collateral terms on which this is provided. Note, however, that ECB’s Praet in a speech yesterday said that in the event of an unwarranted tightening of financial conditions and/or higher macro uncertainty, the ECB ‘would make full use of the flexibility afforded by the measures already in place and activate other policy instruments if necessary’. He also noted that with the European Court of Justice ruling on the OMT scheme the ECB is ‘allowed “broad discretion” when preparing and implementing its monetary policy’. In essence Praet thus echoed Draghi’s ‘whatever it takes’ stance.

The July Chinese manufacturing PMI was stable at 50.2, slightly below expectations, while the batch of Japanese data released overnight was on the strong side. US equities ended the day with minor gains largely tracked in Asia overnight. US Treasury yields were only marginally higher on the day; German Bund yields ended the day a few bp lower and the peripheral spreads tightened a little.

Iran and the so-called P5+1 yesterday agreed to postpone the self-imposed deadline for a comprehensive deal on Iran’s nuclear programme by a week to 7 July. The two sides have yet to agree on important issues, e.g. whether to allow international inspectors at military facilities in Iran and under what conditions and in what tempo sanctions on Iran will be lifted. Brent oil back in the USD62/bbl range.