Focus on US as Greece Rumbles on in Background

Greece remains a key driver of the markets on Thursday as finance ministers continue negotiations on the Greek bailout package and leaders arrive for the latest E.U. summit. The U.S. will also be in focus will a number of key economic indicators being released.

There has been few developments in Greek talks this morning. Greece is believed to be working on its latest proposal to be delivered for the eurogroup meeting, which we can only assume will be rejected, as is likely with the counter-proposal sent by the creditors. A deal today once again looks very unlikely given the stance we’ve seen from both sides in recent days.

Greece remains determined to avoid making cuts to pensions as part of the deal, as was their pledge when they were elected, while the International Monetary Fund in particular is insistent that any deal must include them. The Greeks counter-offer of higher taxes did not go down well with the IMF earlier this week as this was not viewed as a sustainable alternative to reducing spending while supporting future economic growth.

It was suggested this morning by the Austrian Finance Minister that Sunday is the ultimate deadline for a Greek deal to be done. This is hardly surprising given that every other deadline that has been touted has been pushed back and Greece could default on its debt to the IMF on Tuesday. With this in mind, a deal today now looks even more unlikely and it’s far from certain that Sunday will produce a deal either.

If reports are true that on agreement, finance ministers can release around €3.35 billion of funds from the profits of the European Central Banks’ Securities Markets Program purchases, this would surely suggest that Tuesday is in fact the real deadline and any bailout funds received after that will be used to cover future obligations. That’s assuming a deal will even be reached then.

The U.S. will come back into focus today, with some key economic figures being released. The most notable of these will be the inflation, income and spending figures, with the core personal consumption expenditure price index being the Federal Reserve’s preferred inflation measure.

Inflation is expected to have risen by 0.1% in May, in line with the last four months. This is clearly below what the Fed would like to see when considering rate hikes but it’s important to note that their decisions are based on inflation expectations which would rise if incomes and spending were growing at a faster rate.

The income and spending data for May is expected to show just that, with incomes seen rising by 0.5% and spending by 0.7%. The latter of these is the most important at this stage as Americans have had larger disposable incomes for a while now as a result of lower oil prices, but were not spending it. With spending now catching up as incomes rise it would suggest that inflationary pressures, and therefore expectations, will grow as the year progresses.

The other notable releases today are weekly jobless claims and flash services and composite PMI readings. Weekly jobless claims have been reliably low for some time now and therefore don’t necessarily tell us anything new about the economy. The labour market has been strong this year and with unemployment at 5.5% and job creation very strong, this is not going to be what is forcing the Fed to carefully consider their decisions.

The services sector is hugely important to the U.S. economy, accounting for around two thirds of output, and therefore the PMI readings could give good insight into how the economy will perform in the second half, having got off to a slow start. The figure is expected to rise to 56.7 from 56.2 in May, which while not being a great leap is still well into growth territory. This still bodes well for the final six months of the year, especially with incomes and spending on the rise.

Economic Calendar

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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.