Greece Still Weighs As Attention Shifts To Data

Financial markets are likely to settle down a little on Tuesday following widespread panic-driven selling at the start of the week in response to Greece’s rejection of its creditors bailout proposal, referendum announcement and banking system closure.

The latter in particular could really harm the economy depending on how long it stays in place. Few would argue that the European Central Bank had little choice but to freeze its emergency liquidity assistance (ELA) to Greek banks, as the latest announcements significantly increased the probability of a “Grexit” and significant withdrawals raised questions over their solvency. It is, however, possible that the central bank is attempting to influence the vote next weekend and give Greeks a taste of what a rejection of the bailout would feel like. In reality it could be much worse.

The markets didn’t appear particularly ready for those developments over the weekend as we’re all just so used to an 11th hour deal that I think people just assumed that would happen again. The negative and uncertain tone from yesterday may well continue throughout the week now as we approach the referendum.

What may keep investors a little optimistic is the fact that the polls do suggest Greeks favour accepting the deal and I imaging limiting people’s access to withdraw cash is only going to help that number. Although, one thing we learned from the U.K. this year is that polls are not always accurate and should not be taken for granted. If the polls are accurate and the deal is accepted by the Greeks, it could be swiftly followed by the resignation of Greek Prime Minister Alexis Tsipras who is actively campaigning against the deal which may delay matters further, although in these circumstances an interim government could possibly be put in place to fulfil the wishes of the Greek people.

As far as the markets are concerned today, there is likely to remain a negative bias although the shock factor now appears to be wearing off. It will be interesting to see whether investors will become complacent again as we head into the weekend if the polls do show large support for the bailout.

There is an emergency eurogroup meeting scheduled for today, but given that Tsipras rejected European Commission President Jean-Claude Juncker’s last minute offer, nothing is likely to come from this, that’s if it even takes place now. The offer was made by Juncker in a desperate attempt to prevent Greece defaulting today, which at this stage looks inevitable. What isn’t clear is what a default – or being in arrears as it is suddenly being termed – to the International Monetary Fund really means with there being suggestions that this is not technically default at all. Regardless, it’s a mess and international investors are far from impressed.

They may be able to take their minds momentarily off the debacle in Greece today, with some important economic data being released. While this is likely to be somewhat overshadowed, it’s unlikely to be ignored, particularly the eurozone CPI flash estimate. It is already possible that the ECB may have to provide additional monetary assistance in the case of a “Grexit”, if it also comes when inflation is easing off again, they may need to do something sooner or larger. We’re expecting no drop in the headline figure today while the core reading is expected to drop to 0.8% from 0.9% in May.

Also being released today is the third estimate of U.K. first quarter GDP which is expected to be revised slightly higher to 2.5% from 2.4% previously, as well as current account data for the first quarter. This follows retail sales figures in Germany and a variety of other smaller impact data in the rest of the euro area.

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