We will start Monday’s market wrap with the same reasoning we gave why on Friday everything started off neon green:
In what is perhaps the most glaring instance of central bank intervention yet, Reuters today captured the market mood as follows: “Calm ruled Europe’s stock and currency markets on Friday as Greece inched closer to a default later this month….the euro was down just 0.3 percent against the dollar and major European stock markets gained in early trade.” Why is Europe (and by extension US futures) so desperate to show green today even with a Greek default imminent? The same reason we explained back in January when we said the ECB and the Fed would do everything in their power to eliminate all Greek “negotiating” leverage which from day one was the attempt to create market contagion from Grexit. Unfortunately for Greece, the ECB’s QE intervened and blew a hole right through its plans, and now, it finds that not only do markets not care about the Greek contagion about which even Janet Yellen warned, but in the US hit all time highs!
Well, today is Friday taken to the nth degree, with the markets having already declared if not victory then the death of all Greek “contagion” leverage, following news that a new Greek proposal was sent yesterday (which as we summarized does not include any of the demanded by the Troika pension cuts), ignoring news that Greece had again sent Belgium the wrong proposal which the market has taken as a sign of capitulation by Tsipras, and as a result futures are surging higher by nearly 1%, the German DAX is up a whopping 3.1%, on track for the biggest one day gain in three years, Greek stocks up over 8%, German and US Treasurys sliding while Greek and peripheral bonds are surging (at last check Spanish paper was about 20 bps tighter than comparable US 10 year bonds because, well, fundamentals and stuff).
Another factor helping buoy sentiment is an unconfirmed report from Bloomberg that in an unprecedented move, the ECB boosted Greek ELA earlier today which would make it the third time in under a week, in a bid to keep insolvent Greek banks funded for a few more days if not hour even as the Greek bank run soaks up all the cash the ECB’s ELA pumps in virtually the same day. This happens as Germany’s Christian Social Union finance committee member Hans Michelbach and Social Democrat deputy parliamentary head Carsten Schneider said they want to stop Emergency Liquidity Assistance for Greek banks, according to a Spiegel interview with the politicians, according to whom the “ELA gives Greece more leeway to negotiate” and creates a “fiction of Greek banks’ solvency.” Well yes, the whole point – not to mention the entire theater such as the photo below – is to kick the can if not months ahead then at least days and hours.
So yes, Greek optimism has again been the main driving force thus far in Europe with fixed income products lower and equities higher in the first half of the session. The upbeat tone has largely stemmed from reports that Greek PM Tsipras has submitted a further set of proposals ahead of today’s emergency summit which is due to commence at 1130BST/0530CDT. However, according to a senior Juncker aide, no emergency funds will be released at today’s meeting, with the aim to be to achieve a political understanding. Juncker also said no deal has been agreed yet on Greece and does not believe a deal will be done today.
Not helping things was Finland’s finance minister Stubb who said he does not foresee a breakthrough today, saying he has “very low expectations for today” and that “It seems to be a Monday where we have wasted a lost of air miles, as finance ministers and European leaders.”
Nonetheless, the upbeat weekend reports and news that the ECB have extended the ELA for Greek banks has seen Greek assets
outperform throughout the session with the ASE sharply higher (+8.3%) and Greek 2yr yield lower (-383bps),
Sentiment in Europe for stocks has also been underpinned by various stocks specific news with German automakers supported by a positive note from JP Morgan and weaker EUR, subsequently leading the DAX (+3.0%) to be on track for its best session in 3yrs with the Eurostoxx (+2.9%) seeing its largest daily gain since January. Telecom names have also been supported by reports that Altice and Numericable have made offers for Bouygues.
And while equity algos are testing and breaking all stops to the upside in FX it is a different story, and the EUR has somewhat bucked the trend by shedding its initial gains. Over the past month EUR/USD has continued to ebb higher amid hopes that at some point a deal will be struck between Greece and their creditors (momentum also helped by the FOMC inspired weaker USD), with CFTC data indicating an unwind of short EUR positions. However, now that it appears that a deal is within reach, an element of ‘buy the rumour, sell the fact’ appears to have crept into price action, with some participants also placing attention on comments from EU’s Juncker who said he wants to see better management of the EUR by Brussels. Optimism has also seen an unwind of safe-haven positions, with the weaker CHF helping USD gain further ground against EUR.
