European futures are pointing to the upside ahead of the first trading day of the week suggesting a more positive sentiment among traders despite Greece’s apparent insistence on walking blindly towards default without any consideration for the consequences.
For a long time I have been confident that Greece will eventually give in to the demands of its creditors and accept unpopular reforms in exchange for €7.2 billion in bailout funds, as agreed in February. As a gesture of goodwill, its credits may offer minor concessions in order to appease the Greek electorate and allow the Syriza government to claim a small victory.
The longer these negotiations go on, the less confident I am becoming and reports this weekend suggest they will not last much longer. A letter leaked over the weekend confirmed that Greek Prime Minister Alexis Tsipras wrote to the International Monetary Fund chief Christine Lagarde informing her that Greece didn’t have the funds to make its €750 million repayment. The repayment was eventually made because Tsipras learned of an emergency reserves account at the IMF that enabled Greece to remain solvent a little longer. The country effectively used IMF money to repay the IMF.
The account was emptied to make the repayment so that’s another option that’s now off the table, so it looks like once again, when the next repayment comes due – on 5 June – Greece will not be able to oblige. The worrying thing is that despite this, Tsipras has stressed that they will not “back down on pension and labour issues”, an area where its creditors appear to hold a similar stance.
If neither side changes its stance then it would appear Greece is only a couple of weeks from defaulting on its debt and yet, the markets seem rather unfazed. Maybe investors have become immune to all this tough talk and still think Tsipras will cave or resign, enabling a late deal to be done. If we remain in this position as we near the 5 June, I doubt investors will be so confident.
Investors may continue to focus on Greek developments this morning, particularly in the absence of any major economic data to provide any catalysts for the market. This will improve as the week goes on but today we must do without. Bond yields appear to have stabilized which may offer similar stability elsewhere after some choppy conditions in recent weeks.
The FTSE is expected to open 5 points higher, the CAC 9 points higher and the DAX 31 points higher.