Greece under pressure from the IMF and ECB

Market movers today

• With very little news on the agenda today, Greece is likely to remain in focus.

• New York Fed President Dudley will speak on the economy and monetary policy this afternoon and ECB Vice President Constancio will present ECB’s annual report to the European Parliament.

Selected market news

Global risk market probably got some support over the weekend as People’s Bank of China (PBoC) on Sunday in a surprise move announced that the important reserve requirement ratio (RRR) for commercial banks will be cut by 100bp. For large commercial banks the RRR will now be 18.5%.The move is regarded as aggressive and should help to alleviate some of the current market fear of a more severe downturn in the Chinese economy.

The pressure on Greece from both the IMF and the ECB has been building over the weekend as policymakers gathered in Washington for the IMF spring meeting. IMF’s Lagarde said in an interview with the FT that ‘patience was running out with the new Syriza government in Athens and that any honeymoon it may have had with its creditors was rapidly coming to a close’. She also said that ‘the political views need to actually deliver the measures, the tools, the reforms that could actually reach the objectives that have been set between the international community and Greece’.

ECB President Draghi also appeared on the news over the weekend saying that it was ‘urgent’ that Greece does ‘much more work’ to show it can satisfy the terms of the bailout and that ‘the answer is in the hands of the Greek government’. Importantly, Draghi also underlined that the ECB can do more if there is contagion from the crisis saying that ‘we have enough instruments at this point in time which, although they have been designed for other purposes, would certainly be used at a crisis time if needed’. The Draghi comments together with the Chinese easing measures should mitigate some of the negative market impact from the ongoing focus on Greece this week.

In that respect, it still seems that the Greek policymakers remain defiant. Deputy Prime Minister Yannis Dragasakis said on Sunday that ‘we don’t budge from our red lines’ and that ‘snap elections or a referendum are possible should negotiations with creditors stall’.

The discussion will continue at the upcoming Eurogroup meeting on 24 April. However, as Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem said on Saturday, it seems more and more unlikely that a deal between Greece and its creditors will be ready by the start of the euro-zone Finance Ministers’ meeting.

In Finland the general election resulted in a victory for the centre party led by Juha Sipala. It is still not clear with whom Sipala will form a government but irrespective of the composition of the government, we expect it to stick to the reform agenda and the market reaction in the Finnish government bond market should be very small if any.