Eurogroup Meeting Key Ahead of Tomorrow’s Summit

Greece will remain the focal point for the markets on Wednesday, as the eurogroup of finance ministers meet once again to discuss the latest set of proposals put forward by Greece on Monday.

There has been growing optimism in the markets that a deal be reached this week that will allow Greece to avoid default to the International Monetary Fund in six days and the possible exit that could follow. It’s been a while since people have actually been hopeful on a Greek deal and it’s providing a good boost to the markets.

It is worth noting that while Greece does appear to have made strides towards a deal with its latest proposal, we shouldn’t forget that these things rarely go smoothly and even at this late stage, negotiations could hit a few speed bumps. We shouldn’t be surprised if talks take a turn for the worse today as creditors push back on certain issues that creates further friction between the two sides.

Hopefully that will not be the case and everything today will run smoothly today, opening the door to a deal getting the stamp of approval at tomorrow’s summit. Unfortunately, if past negotiations have taught us anything it’s that this generally doesn’t happen so it’s hard to get too carried away quite yet. This isn’t helped by German Chancellor Angela Merkel claiming there isn’t any guarantee of a deal and that there’s still a lot of work to be done.

Regardless of what happens today, a deal agreed between the two sides should hopefully be completed which will allow investors to pay attention once again to the fundamentals, rather than whether the eurozone can survive another storm. It was interesting that yesterday’s PMI readings for June improved from Germany, France and the eurozone as recent releases suggested that the Greek factor was weighing on sentiment.

This morning, the German Ifo business climate reading should hopefully confirm the data, although initial forecasts suggest it will ease of slightly from May’s 108.5, to 108.2. Given yesterday’s manufacturing and services PMI readings, these forecasts may be a little pessimistic and we could therefore see a higher Ifo reading. Hopefully all of this bodes well for the second half of the year.

We’ll have more data from the U.S. this afternoon with the final reading of first quarter GDP being released. Having been revised down to -0.7% following what was a very tough quarter for the U.S., the figure is expected to be revised back up to -0.2% today. While this is a disappointing reading, it’s really not as bad as what much of the data for the first quarter suggested it was going to be. The first quarter of last year was far worse and the overall year turned out rather good.

The FTSE is expected to open 2 points lower, the CAC unchanged and the DAX 41 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.