And so the 2015 season of the Greek drama is coming to a close following last night’s vote in Greek parliament to vote the country into even more austerity than was the case before Syriza was voted into power with promises of removing all austerity, even with Europe – which formally admits Greece is unsustainable in its current debt configuration – now terminally split on how to proceed, with Germany’s fin-min still calling for a “temporary Grexit”, the IMF demanding massive debt haircuts, while the rest of Europe (and not so happy if one is Finnish or Dutch) just happy to kick the can for the third time.
The following tweet probably best captures the surreal nature of the “deal”:
They all disagree to agree that this unsustainable deal is sustainable.
— Olivier Drot (@OlivierDrot) July 16, 2015
Which means that nothing is really fixed, Greece will remain a pass-through vehicle for the Troika to pay into so it can repay itself, while the Greek economy continues to disintegrate, and this whole theater will repeat itself in X months, just with a different set of players.
For stocks, however kicking the can is the best possible news as it means even more debt will be layered, which will force the ECB to keep rates at zero and/or negative for longer, and nowhere is this seen better than in European equities, currently at 6 week highs, and US futures, both of which are surging this morning with Europe in the green across the board: Eurostoxx 50 +1.2%, FTSE 100 +0.5%, CAC 40 +1.4%, DAX +1.5%, IBEX +1.3%, FTSEMIB +1.2%, SMI +1%.
European equities trade in the green (Euro Stoxx: +1.5%) as exporters outperform amid the weaker EUR. In company specific news, Bloomberg sources suggest Volkswagen’s (+2.4%) Audi abandoned their plans to sell 600,000 cars in China this year, seeing an immediate fall of 2.5% before paring much of this move due to the aforementioned EUR weakness and after data showed European car sales had their biggest jump in five and a half years.
Asian equities rose after the Greek parliament voted to pass the preliminary bailout reforms. Consequently, ASX 200 (+0.6%) extended its relief rally led by gains in financials. Nikkei 225 (+0.7%) was led by exporters benefitting from JPY weakness, coupled with positive sentiment in the region. Chinese stocks initially opened lower as margin debt trading fell for the first time this week, while the PBoC conducted its first net weekly drain since April, however prices recovered in continuation of the recent volatility seen in Chinese stock markets. JGB’s rose following a well-received 5-yr JGB auction which printed a higher than prior b/c.
Fixed income markets trade in modest negative territory amid the strength in equities, while Bunds underperform as France auctioned EUR 8bIn worth of bonds and Spain auctioned EUR 6.4bIn of bonds, with all bid/covers lower than previous.
Today sees a number of high profile earnings including Goldman Sachs (GS), Citigroup (C) and Google (GOOG).
The EUR, which was kept afloat as a result of carry-trade unwinds and ECB support during the Greek drama, has seen weakness throughout the European morning to see EUR/USD reside at 6 week lows and briefly breaking below 1.0900 while EUR/GBP fell to fresh 8 year lows. This comes in the wake of yesterday’s Greek parliamentary vote, seeing the deal with creditors pass, to now be voted on by other Eurozone parliaments.
Naturally, sentiment this morning has been relatively bullish with regards to Greece despite Bloomberg sources suggesting that the ECB has not given a decision on emergency aid for Greek banks but favor seeing the cap remain on hold, with the sources also suggesting that Greece requested increase in ELA of EUR 1.5bIn. This comes as Bloomberg sources later noted that the Eurozone has provisionally agreed to a EUR 7bIn bridge loan for Greece, with Finland, who are traditionally against the idea of providing Greece more capital set to approve Greek bailout talks.
EUR weakness also comes after recent hawkish comments from both the Fed and BoE, with the ECB rate decision scheduled for later today with President Draghi due to give his press conference shortly after, while Eurozone CPI data today was in line with expectations.
Elsewhere, USD/JPY trades in close proximity to a large option expiry at today’s NY cut at 124.00 (USD 1.3bIn), with USD index heading into the North American crossover at trading near its highs (+0.2%) . Asian hours saw NZD underperform as participants reacted to the latest Fonterra GlobalDairyTrade auction, where prices declined to 6-year lows and New Zealand CPI printed softer than expected (0.4% vs. Exp. 0.5%), which allows further scope for the RBNZ to cut rates.
