A short summary of today's developments
- ECB maintained ELA funding – collateral haircuts increased. The size of the haircuts is not disclosed, but media reports suggest it is not possible to increase ELA further as haircuts match the total pool of collateral in Greek banks.
- The message from Merkel/Hollande meeting yesterday was that it is up to Greece to deliver a proposal for a new programme.
- According to sources in Brussels, 16 of the other 18 countries in the euro area are in favour of Grexit (France and Cyprus said to be in favour).
- Ahead of today’s Eurogroup meeting, Tsipras should have requested EUR7bn bridge loan within 48 hours, but he came to the meeting without proposals.
- Dijsselbloem emphasized that the Eurogroup is willing “to do whatever it takes” to limit contagion. Following the Eurogroup meeting he said, he will ask the Institutions to look at the situation in Greece after which the Eurogroup will see whether negotiations can formally start.
- The EU leader Summit is set to begin 18.30 CET (delayed half an hour). There will be an Eurogroup conference call tomorrow.
- Greece has a EUR1.25bn auction in 6M bills that could attract attention tomorrow. Greece has so far been able to roll bills and with redemptions coming up Friday it is crucial that Greece can avoid a failed auction.
Market reaction
- Across euro FI markets the yield curves bull flattened with German 30y yields down 16bp to 1.41%. The curve flattening was supported by a lower oil price trading below USD60/bl for the first time since mid-April.
- In spread terms the market movements were muted. Portugal was again the biggest loser with 8bp widening against 10Y Germany while the Spanish and Italian spreads ended the day little changed.
- EUR/USD declined below 1.10, which in our view reflects that there is no clear end-game in the Greek saga, in contrast to last week where the market saw the referendum as being the turning point. No news and no clear end-game imply a slow burner for the EUR. Falling volatility implies that the EUR is back as the funding currency of choice. Expect EUR/USD to grind lower with occasional spikes on headlines.
- Eurostoxx ended Day 2 down more than 2%.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.0700 as focus shifts to Fed policy decisions
EUR/USD stays in its daily range below 1.0700 after the data from the US showed that private sector employment rose more than expected in April. The Federal Reserve will announce monetary policy decisions later in the day.
GBP/USD holds steady below 1.2500 ahead of Fed
GBP/USD is off the lows but stays flatlined below 1.2500 on Wednesday. The US Dollar holds its ground after upbeat ADP Employment Change data and doesn't allow the pair to stage a rebound ahead of the Fed's policy decisions.
Gold consolidates losses below $2,300, eyes on Fed policy decision
Gold price hovers below $2,300 as uncertainty ahead of the Fed’s policy announcements improves the appeal of the US Dollar and bond yields. The Fed is expected to hold the policy rate unchanged amid stubborn inflation.
A new stage of Bitcoin's decline
Bitcoin's closing price on Tuesday became the lowest since late February, confirming the downward trend and falling under March and April support and the psychologically important round level.
US Federal Reserve Decision Preview: Markets look for clues about interest rate cut timing
The Federal Reserve is widely anticipated to keep interest rates unchanged. Fed Chairman Powell’s remarks could provide important clues about the timing of the policy pivot.