Greek Default Odds Rise as IMF Returns Home

European futures are pointing to a slightly lower end to the week as we continuing to get conflicting reports from officials involved in Greece’s cash-for-reforms discussions which has once again drained any hope of a deal being reached next week.

While the rhetoric coming from the Greek camp is one of optimism and confidence at a deal being reached, its creditors are far from convinced. The International Monetary Fund pulled out of talks in Brussels on Thursday and decided to return to Washington as progress was not being made on key areas such as pension and labour market reform.

This is not the first time an official representing Greece’s creditors has said this but still, the decision to abandon the talks altogether is a bold one. The current bailout expires at the end of the month, at which point Greece is due to pay €1.6 billion to the IMF and €1.5 billion in public sector wages and pensions.

This seems unlikely to happen without securing the bailout funds but for that to happen, a deal is believed to need to be agreed next week in order to allow time for it to pass through respective parliaments. In the past, Greece has loved to push the boundaries and I’m sure this will probably happen again, especially as a deal currently looks far from being done.

There was some optimism yesterday that Germany may be interested in a pay-per-reform deal in which Greece would receive cash in a staggered manner as it implements the reforms. This appears to have been rejected since, although not directly which suggests that while it may not be being discussed right now, it may be something that appears back on the table next week in order to prevent Greece defaulting.

As has been the case for most of the week, it’s looking a little quieter on the data side. Eurozone industrial production and U.K. construction figures will be released this morning but are unlikely to have much bearing on the markets. PPI readings from the U.S. will be more closely followed for signs that inflationary pressures are returning. The PPI reading has been negative for five of the last six months but it is expected to rebound to 0.4% today, which would be the highest reading in almost a year.

A strong retail sales report was welcomes yesterday as it seems higher wages have achieved something that lower oil prices failed to do, get the consumer spending again. If we can see an improvement on last month’s UoM consumer sentiment reading, it may suggest it’s going to be a good summer of spending in the U.S.

The FTSE is expected to open 26 points lower, the CAC 14 points lower and the DAX 45 points lower.

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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.