Greece debt deal: Time running out for Greeks

Yesterday’s market action

Last week closed out with a bang with an extraordinary general election result in the UK seeing David Cameron and the Conservative party gaining an outright majority to confound the pollsters, who all suggested that Labour were neck and neck with the Tories. The result was taken as ‘markets positive’ with the FTSE 100 climbing 2% and Sterling appreciating in value. On top of this we saw an important US Non Farm Payrolls report that showed 223k jobs were created in April, which was just shy of the 228k expected. However, March’s figure got revised heavily lower from the previous 126k to a 3 year low of 85k. This was a difficult set of numbers to draw any clear conclusions from and market reaction reflected this with the US Dollar, US Government bonds and commodities all struggling to find clear direction after the data was announced. On the one hand it was a relief to see a figure nicely above 200k as this shows the sharp dip in March was a temporary one-off and labour market momentum is still solid. However, on the other hand the data was worse than expected and March’s downward revision shows Q1 was weaker than thought and it is almost certain that US Q1 GDP will now be revised into negative territory. The one clear winner were equity markets. These numbers were pretty much the only results that could have lead to equity upside. This is the ‘sweet spot’ where job creation has rebounded from March indicating that labour market momentum is still strong BUT the momentum is not TOO strong such that it will force the Fed to raise rates.

Today’s View

The PBoC cut interest rates overnight by 0.25% leading to a generally positive reaction for Chinese equities. But mainly this week attention will return to the Eurozone with the latest Eurogroup meeting taking place today in a seemingly permanent fixture that is the Greek debt crisis. Greece have two bills to pay this week, which are the last creditor payments until the start of June. As it stands it appears that Greece can afford to make their IMF and T-Bill redemption payments in the next few days, but they will not be able to afford the June payments, especially the almost EUR 4bln payment on the 12th June. Greece will need to reach a new deal with the Eurogroup and the IMF by June otherwise the default scenario will occur. Markets are not expecting any deals to be reached in today’s meeting but we are hoping for at least some positive progress. The last Europgourp meeting saw the Greek Fin Min Varoufakis alienate himself from the Eurogroup in some style and the result was a significant breakdown in talks. Time is running out fast and if today’s meeting sees the same negative outcome as the last one then markets will begin to react to the eventuality of a Eurozone that does not include Greece. Outside of this event there is very little by way of scheduled news flow as is always the case on the Monday following Non-Farm Payrolls. We expect a quiet session until perhaps Eurogroup headlines come into the equation, but these are not likely due until tonight. We prefer to keep our generally bearish outlook and have a strategy report today that sees us highlight a short trade on all four assets.