Greece, Data and Central Banks All Key This Week

European futures are pointing to a slightly higher open on Monday despite a lack of progress in Greek negotiations over the weekend and ahead of a busy and important week in the markets.

The first week of the month is more often than not the most important as we get tons of economic data, including Friday’s U.S. jobs report which is viewed by many as the most important of the lot. Add to that some central bank decisions, including that of the European Central Bank on Wednesday, and the tense battle between Greece and the institutions – International Monetary Fund, E.U. and ECB – over its bailout extension and we should be in for one hell of a week.

Talks between Greece and its creditors have been going on for months now and repeatedly during that time, deadlines have come and gone with Greece always finding some creative way of honoring its repayments. Friday is the latest deadline as €300 million is owed to the IMF and Greece has been very open about the fact that is doesn’t have the cash this time.

However, it has been suggested that Greece could take all four repayments due to the IMF in June, totaling €1.6 billion, and pay them at the end of the month, which the IMF has suggested it may be open to. While that would once again nudge the can down the road, I can’t see what they would hope to achieve in a few more weeks that hasn’t proved possible in four months. If Greece’s creditors want to apply the pressure and force it to accept their terms, now is the time to do it rather than force everyone to endure another few weeks of uncertainty.

The same differences still appear to be preventing a deal being done including proposed VAT changes, labour market and pension reform. These are the so-called red lines for Greece but it would appear a similar stance is being taken by the institutions and if a deal is going to happen, one of them needs to budge. The longer this goes on, the more we’re going to have to prepare for a Greek default and everything that comes with it. Greeks are already preparing by taking their money out of the banks which could eventually lead to capital controls being put in place to prevent them collapsing.

As this talks continue, there’s plenty of economic data that will provide a suitable distraction. The Chinese data released overnight has got us off to a decent start, rising in line with expectations while remaining weak enough for investors to price in further central bank stimulus.

Still to come we have manufacturing PMI readings for many countries in Europe, with many expected to fall off slightly on the rising Greek uncertainty. The data from the U.S. is probably of most interest today as we’ll get the latest income and spending data as well as the Federal Reserve’s preferred inflation measure, the core personal consumption expenditure price index. These are what is believed to be delaying the Fed in hiking rates and therefore I think we could get a big market reaction to them. Any improvement in them and I think a September rate hike gets put back on the table for many.

The FTSE is expected to open 34 points higher, the CAC 23 points higher and the DAX 46 points higher.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.