Another Day, Another Eurogroup Meeting

The Greek saga continues today as Greece falls into arrears with the International Monetary Fund after failing to repay €1.6 billion on Tuesday, despite an 11th hour request for a repayment extension.

Another eurogroup meeting has been called for today to discuss the latest proposal from Greece for a two-year bailout extension that will fully fund the country during that period and a debt restructuring program. The proposal apparently offered no concessions on reforms demanded by creditors which, if true, is absolutely mind-blowing given the events of the last four months.

While all concerned would be delighted to agree to a two year deal, it is surely very unlikely without the backing of the Greek people in this weekend’s referendum. Greek Finance Minister Yanis Varoufakis yesterday claimed that should they come to an agreement on a deal by the weekend, the government would consider supporting the yes vote or calling the referendum off altogether.

Varoufakis is now essentially using the referendum to try and blackmail the country’s creditors into a deal which is simply bizarre and suggests that even after all this time, he does not quite get it. If he thinks for a second that they will back down on reform demands out of fear of the Greek people voting against the deal, he is bordering on deluded and we can only hope that this was not their plan when calling the referendum.

In fact, calling the referendum and allowing the 30 June deadline to pass appears to have strengthened the institutions resolve if anything. They are now claiming that an extension is no longer possible and that Greece must negotiate a new bailout program that could come with harsher austerity and reform measures. So even if Greece does vote in favour of the package, it may well be back to the negotiating table.

That said, if Greeks do vote in favour of the deal, there has been constant speculation that Prime Minister Alexis Tsipras would resign which would be the correct decision. While he has shown strong leadership at times throughout the negotiations, his inability to get a deal or make a decision so late in the day – instead passing on the responsibility to the Greek people – is simply embarrassing. A yes vote on the deal is effectively a rejection of Tsipras and his government and if he were to then accept austerity and reforms, it would represent a failure.

What we could instead see, which is probably what the creditors are hoping for at this stage, is Tsipras resign and the support for a deal translates into an election victory for a party that supports a bailout. This would make negotiations much easier and probably lead to another program being agreed.

As finance ministers discuss Greece’s latest proposal, a whole host of economic data will be released that will keep traders on their toes. Manufacturing PMIs for June for most of Europe will be released throughout the morning. These are revised figures in many cases so the reaction in the markets may be smaller, although there is always scope for large revisions. The reading last week surprisingly pointed to a boost in confidence despite the Greek drama weighing in past months. It will be interesting to see if the same sentiment was felt throughout the rest of Europe as well.

In the U.S. we’ll get the revised manufacturing PMI reading followed shortly after by the ISM manufacturing PMI, the latter is usually followed more closely by traders. We’ll also get the latest ADP non-farm employment change reading ahead of tomorrow’s jobs report which is being released early due to the Independence Day bank holiday on Friday. It is expected to show 219,000 new jobs being created in June. Once again, this is not generally a good estimate of the official reading, as we saw last month with it being off by 79,000. Only significant swings generally catch people’s attention as they suggest estimates for the official reading may be far off.

This morning we got the latest PMI data for China and it didn’t make for great reading. The official manufacturing PMI was unchanged from May at 50.2, slightly shy of expectations, while the HSBC – which focuses more on small to medium-sized firms – rose to 49.4, again shy of expectations. A number below 50 also represents contraction in the sector. With the People’s Bank of China having cut rates again this weekend, there is clearly an effort being made to support the economy – even if the latest was probably largely aimed at the freefalling stock market – and we may start to see results in the coming months.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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.