Greece has formally fallen into arrears with the IMF, and the second aid
package has expired. The markets have taken it in stride. The
euro was briefly pushed below $1.1100 but snapped back quickly amid reports
that Greece is willing to accept most of creditors conditions. The
euro bounced almost three-quarters of a cent on the headlines, but it likely
reflects more about short-term market positioning than a serious new
development.
As we have noted, the European creditors and the Greek government were
fairly close to an agreement prior. For all the talk of Syriza being
radical, it was willing to accept around 90% of the creditors demands.
This basis of one of the criticisms of the referendum: the government
wants to Greek people to reject the creditors proposal even though it supports
the lion's share of it.
This seeming reversal by Tsipras will likely annoy the official creditors
as it underscores that there was no reason to end negotiations. It
will not bolster the sorely lacking trust. Indeed, it shows that despite
the polls suggesting that the "no" vote is ahead, the Syriza
government is flailing. As of late yesterday, Merkel rejected new
negotiations now until after the referendum. Due to the unpredictable
nature of Syriza, we suggest that is still a modest chance that the referendum
is called off at the last minute.
The Greek drama is still the main focus though there has been the usual
beginning of the month survey data. The highlights include a
stronger than expected Japanese Tankan survey, especially for large companies,
and capex plans were hiked to 9.3% from a -1.2% fall in the March survey.
Small businesses are still struggling, but the case of an expansion in the
BOJ's QE is not to be found here.
China's PMI possibly shows the transition from manufacturing to services.
The official service PMI rose to 53.8 from 53.2. This is a four-month
high. The official manufacturing PMI was unchanged at 50.2. The
consensus expected 50.4. New orders and new export orders weakened
further, suggesting no imminent recovery in the manufacturing sector. The
HSBC manufacturing PMI was revised to 49.4 from 49.6 in the flash.
After a rally yesterday, Chinese stocks turned back down
today with the Shanghai shedding 5.25%; reversing early gains to settle on its
lows.
The eurozone manufacturing PMI was in line with the flash 52.5 reading.
Germany was unchanged form the flash 52.5, and France improved to 50.7 from
50.5 flash. Note that this is the first reading above 50 for France since
April 2014. Both Spain and Italy's manufacturing PMI were softer than
expected and below the May readings. Spain's manufacturing PMI stood at
54.5 down from 55.8 in May. Italy's stood at 54.1 from 54.8. The
three factors that helped fuel the cyclical recovery, decline in oil prices,
the euro and interest rates have all been partly reversed.
The non-EMU European manufacturing PMIs were disappointing. The
UK's fell to 51.4 from 51.9. This is a two-year low. The average in
Q1 was 53.7. The average in Q2 is 51.7. The manufacturing sector is
small, and the service sector update is important, but the market may have been
jumping the gun with talk of a November hike.
Separately, Norway and Sweden also reported disappointing PMIs.
Norway's slumped to 44.0 from 46.5. This is a six-year low.
Although the central bank may not put as much emphasis on this report as it
does its own regional survey, another rate cut is likely. Sweden's
Riksbank meets tomorrow and will not like the fall in the manufacturing PMI to
52.8 from 54.8. It is the low for the year and orders fell to eight-month
lows. There is more talk of a small rate cut and a possible extension in
the bond purchase program.
The US reports a slew of data today. The ADP employment estimate is for 218k
private sector job growth. The ADP has
underestimated the BLS figure in five of the past seven months. The market also puts emphasis on the ISM
manufacturing report. Chicago’s
disappointed yesterday, suggesting downside risk with today’s national report. The market expects a small gain to 53.2 from
52.8. Although the markets typically do not respond
to it, we suggest the auto sales data is also important. After a heady 17.7 mln unit pace in May, a
still strong 17.2 mln unit selling pace is expected in June. This speaks to the ongoing strength of US
durable goods purchases.
Deadlines Come and Go, Markets Endure
Reviewed by Marc Chandler
on
July 01, 2015
Rating:
Reviewed by Marc Chandler
on
July 01, 2015
Rating:
