Grexit won't solve anything, Greece to keep damaging the EUR

Outlook:

We all have a certain amount of hope that Greece is back-burnered until after the referendum and we can attend to payrolls today. The range is 220,000 (Market News) to 230,000 (Bloomberg) to 237,000 (NYT). Market News notes the forecast range is 190,000 to 250,000, “but there are some other supersized estimates in the 280,000-290,000 zone being floated around also. The unemployment rate is expected to fall to 5.4% from 5.5%, with a range of 5.3% to 5.5% and average hourly earnings are seen rising by 0.2%, with a range of +0.1% to +0.2%. Backward revisions to prior months, as well as the participation rate, will also be closely eyed. Weekly jobless claims will be released at the same time, with claims seen at 270,000 for the week of June 27.

Yesterday the ADP private sector forecast was 237,000. The NYT notes we had 221,000 in April and 280,000 in May. Economists do not expect June’s total to be that strong — the consensus calls for a 233,000 increase — but anything above 200,000 is considered healthy. So here we are again, defining the tipping point as 200,000. A number under that is dollar-negative and a good number over 230,000 is dollar-positive. If we get a super-number like 280,000-290,000, we won’t even get the usual spike down. Tomorrow is a holiday in the US and markets are closed, so no morning report.

Let’s just add a few more words about Greece before the next report on Monday. We confess we may have been getting it completely wrong. We thought the Greek team was sincere about convincing the creditors their ideas and plans were wrong-headed at their very foundation, as the collapse of the Greek economy was demonstrating. The Greeks are right—the 2010-2012 plan was a very bad one that favored only creditors and brought down ruin on the Greek people. In this context, the brouhooha was not about Grexit. It was about a viable recovery plan.

But the amateurish behavior and annoying arrogance of the Greek leaders resulted in that central point failing to hold center stage and instead all this other stuff came in, including the leftist ideologies that might normally be okay to European ears if they were spoken of in less offensive language. Once Greece allowed itself to get distracted from the core issue, all was lost. Only the unsustainability of the plans gave Greece any power. Once they let that go, the creditors returned to having all the power.

Now we have the ridiculous situation of the Greek public voting on a plan that has expired. As Dijs-selbloem said today, the question posed in the referendum is not relevant now that the deadline for emer-gency funding has passed. And Tsipras keeps insisting talks are on-going and a no vote “would help the country achieve more generous conditions and a stronger negotiating position,” according to the NYT. Juncker notes that the difference between the two sides when Greece walked out was a mere €60 mil-lion. He suggested that maybe walking out was intended all along. Simon Nixon in the WSJ pikcs up this theme: “How much of Alexis Tsipras’s tactics in the past five months have been driven by incompe-tence and how much by conspiracy? It’s a question even the historians may never fully resolve. “The Greek Prime Minister said in a televised statement that those accusing him of having a deliberate plan to take Greece out of the eurozone were telling lies. But what is certain is that if Mr. Tsipras had set out in January to take Greece out of the eurozone, it is very hard to think of anything he would have done differently.

He won the election on a pledge to respect the overwhelming desire of voters to remain in the eurozone, which meant he had no choice but to go through the motions of negotiating with Greece’s creditors for as long as they were willing to indulge him…. If Grexit was always his goal, then his only challenge was to ensure the talks dragged on until the bailout expired, capital controls were introduced and the country defaulted, making a euro exit hard to avoid. The only risk to such a strategy was a bank run before the bailout expired, in which case politics may have intervened……Mr. Tsipras’s decision to escalate rather than capitulate raises the stakes but not all of Greece’s creditors will be disappointed. Opposition leaders believe that with each day that capital controls remain in place, the polls are swinging further in their direction and that they are on for a large win.

“That would bring a degree of political clarity to the situation: Mr. Tsipras would be forced to resign while eurozone officials say that in the event of a strong “yes” vote, they would have an obligation to find a deal with any new Greek government to keep Greece in the eurozone.”

We doubt Tsipras was after Grexit from the very beginning. And Grexit doesn’t solve a single thing. Bottom line—the FX market is expecting a decent payrolls number this morning, plus wages up 0.2% that is not great but keeps the home fires burning. Unless the number is awful, payrolls will bolster the case for September. The dollar “should” go up, and maybe a lot—unless it’s already built in.

Since Grexit doesn’t solve anything and even a “Yes” vote means resignations and other turmoil, Greece can’t be good for the euro. That doesn’t mean traders won’t cover euro shorts and befuddle all of us (again).

Notice to Readers: Friday, July 3 is a national holiday in the US. Markets are closed. There will be no reports.