Greece Fiasco on Hold Pending Referendum, Pound May Fall on PMI

The crisis in Greece is likely to remain in a holding pattern through the remainder of the week. The British Pound may fall as soft PMI data trims BOE rate hike bets.

Talking Points:

• Greece Crisis in a Holding Pattern Ahead of Weekend Referendum Outcome

• Pound May Decline as Soft PMI Data Undercuts BOE Interest Rate Hike Bets

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All eyes remain on Greece after the country missed its scheduled €1.6 billion repayment to the IMF. A statement from the fund said the country is now “in arrears”, which means it is unable to receive further funding until the issue is resolved. Athens requested an extension of the deadline, which the IMF said would be considered by its executive board “in due course”.

Presumably, this means the declaration of a formal default will wait for now. This will allow Christine Lagarde and company to avoid forcing the matter until after the outcome of a referendum on the creditors’ proposals scheduled for the weekend. It may likewise leave room for the ECB to continue offering ELA support to Greek banks, which the central bank probably prefers to do until the democratic process on the ground has a chance to play out.

Eurozone finance ministers are due to hold a conference call on Athens’ request for an extension of its now-expired bailout program as well as debt relief and a two-year loan from the currency bloc’s rescue fund. A meaningful shift in the landscape seems unlikely to emerge from the meeting however. Indeed, German Chancellor Angela Markel said officials will “negotiate about absolutely nothing” with the Greek government until the results of the referendum are on-hand. Still, the situation is highly fluid and significant headline risk remains.

On the economic data front, June’s UK Manufacturing PMI data headlines the docket. The index is expected to edge higher to 52.5, putting the pace of factory-sector activity growth at a three-month high. UK news-flow has tended to underperform relative to consensus forecasts recently, opening the door for a downside surprise. Such an outcome may push back BOE rate hike expectations, weighing on the British Pound.