Talking Points:
- Greece Set to Miss IMF Repayment with As-Yet Unknown Euro Implications
- Pound May Decline if 1Q UK GDP Revision Weighs on BOE Rate Hike Bets
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The revised set of first-quarter UK GDP figures headlines the economic calendar in European hours. The baseline outlook calls for a slight upgrade showing output expanded 0.4 percent versus the 0.3 percent gain initially reported. UK news-flow has tended to underperform relative to consensus forecasts recently, opening the door for a downside surprise. Such an outcome may push back BOE rate hike expectations, weighing on the British pound.
The preliminary set of June’s Eurozone CPI figures is likewise on tap. The core year-on-year inflation rate is expected to edge lower to 0.8 percent after hitting a nine-month high at 0.9 percent in the prior month. The outcome seems unlikely to trigger a significant response from the euro considering its limited implications for near-term ECB policy trends. Indeed, the central bank seems to be on auto-pilot as policymakers continue to implement the €60 billion/month QE effort launched earlier this year.
Furthermore, Greece remains in focus as the markets continue to digest the breakdown in negotiations between Athens and its creditors over the weekend. While a national referendum on the compromise offered by the so-called “institutions” represents the next pivotal inflection point, the country is due to return €1.6 billion to the IMF today. While Greek Prime Minister Alexis Tsipras has already said the payment will not be made, the fund’s response on the implications of doing so have been unclear.
On balance, Christine Lagarde and company will probably want to avoid being the hand that forces the issue and opt to wait for the referendum’s outcome. Still, headline risks remain substantial and sharp volatility may break out. The ECB’s response may prove at least as important as that of the IMF itself. If the central bank judges Athens has defaulted, it will have to decide whether it will cut off emergency financing support for Greek banks. The central bank likely has little interest in shaping political realities, but keeping an eye on news-flow remains a priority.
The New Zealand dollar underperformed in overnight trade as disappointing economic data drove fueled RBNZ interest rate cut expectations. The ANZ Business Confidence dropped to -2.3 in June, the lowest since March 2011. The Japanese yen strengthened as risk aversion fueled safe-haven demand and encouraged unwinding of carry traders funded in terms of the perennially low-yielding currency.
