Tsipras Blinks First

The IMF confirmed that Greece missed its payment and made a request to extend the deadline. If the market gave no reaction, it is certainly because nobody expected Greece to open the wallet in June 30. After trading in the tight range of 1.1115/47 in Asia, EUR/USD bounced back to 1.1171 as PM Tsipras, surprisingly and unexpectedly, said that the Hellenic Republic is ready to accept amendments to extend the expiring bailout program.

Greece will continue occupying the headlines. There are rumours that July 5th referendum may be cancelled, or that PM Tsipras, which was formerly encouraging a no vote, might be turning favourable for a yes vote as the growing anxiety on streets and the tightening rope around people’s necks– mostly due to financial restrictions at micro levels – indicates that a Grexit would only worsen the economic conditions. The turmoil in Greece may well push the majority to accept the bailout and remain into this infernal debt swamp.

Questions will abound as to whether Tsipras even planned to hold a referendum or if it was a bluff that failed to land as expected. At this stage, no one knows what will happen to Greece’s Eurozone membership. The future will tell.

The risk appetite is back given that the Greece default on its IMF payment did not trigger a general panic and that a bailout agreement may well be back on the table. The DAX and the CAC 40 futures gapped higher at the open and extended gains in London on positive developments. The peripheral sovereign bonds are better bid while the buying pressures in German bunds ease. The market activity indicates that the risk of contagion is now being dissipating. This is good news for the euro’s integrity.

Focus shifts to the US jobs market

Despite this morning’s bounce back in the euro complex, the weakness in EUR/USD could follow with the US jobs data as the new catalyser. The June ADP employment report is due today (1315 BST), with the nonfarm payrolls report tomorrow at 1330 BST, a day earlier than normal thanks to the Independence day holiday being observed on Friday.

The consensus for today’s ADP is an optimistic and realistic 218K; the nonfarm payrolls are expected to secure a sound 230K in June. Should the US jobs data meet the market expectations, the Fed hawks will not refrain from pushing the US dollar higher against its G10 and EM peers before the weekly closing bell.

Looking at the implied probabilities extracted from the US sovereign markets, the chances for a rate hike by December stands at a reasonable 55%.

Heavy macro calendar refocuses equity markets

A full macro calendar and no real news emanating from either the Greek camp or that of its creditors is keeping equity markets broadly buoyant this morning. Naturally with markets a slave to headlines in the short term, it would be premature to believe that we’re out of the woods. This could well be the calm before the ultimate storm.

The FTSE 100 is up 0.67% and the Dax is also recapturing some gains (+0.76%) aided by a better than prior print in its June manufacturing output. The euro is also remaining remarkably resilient, circling the $1.11 level for now but essentially lacking any of the contagion hallmarks of a few years ago.

Despite assurances from the present and past governments, the rebalancing of the UK economy remains something of a distant dream. Manufacturing output here, already considered a macro relic, has fallen to a 26 month low. Moderation of new orders and a slower pace of expansion has meant to the second quarter of the year is the weakest since the Q1 in 2013. The pound has relinquished the $1.57 level against the dollar and the €1.42 against the single currency. Market probability for a rate hike here in the UK remain elevated with a 68% chance of by year end.

Todays’ Financial Stability Report may offer some clues to the next move with Mark Carney due to speak at 10.30am.

A mere 7 stocks are trading lower this morning on the FTSE100. A relief rally or a short squeeze will depend on the usual dynamic of being a slave to headlines. This is mainly the supermarket contingent and broader defensive sector which has been fairly upbeat and outperforming the indes in the past few days. Markets are looking more positive with a ‘’risk-on’’ attitude prevailing but ultimately many will remain on the sidelines until we get some resolution in respect to Greece. The macro data from China is also weighing – the economy is certainly slowing and this will keep the basic resource sector on the back foot.


The climb in Serco’s share price today defines ‘coming off a low base’ – it’s been a torrid couple of years for investors in the outsourcing company. With Serco's shares shedding a whopping 75% since July 2013 on the back of its government overcharging scandal it seems the company may be back on track. Trading has met expectations with full year operating profit expected to come in at £90m. Revenues are lower than the same period last year which is attributed to reduced volumes in Australia. The group also said it had cut net debt by £500m with a rights issue after racking up a steep £1.35bn loss for 2014.


A positive trading statement but clearly the drop in global oil prices has taken its toll for Tullow Oil (LONDON:TLW) along with the being relegated from the FTSE 100. The trading statement issued today showed that the oil company expects to report revenues of $800m for the six months to end of June but still $1.3bn lower than the same period in 2014.

The production forecast for 2015 has been upped with capital expenditure also expected to be elevated to $1.9bn this year. Losing 58% in its share price over the past year, there may be takeover and consolidation speculation within this industry that could well attract investors. The average broker price target is 455p.

EasyJet Plc (LONDON:EZJ) is in demand in early trade. The Airports Commission today stated that Heathrow is to be the best option in benefitting from a new runway. This has helped Easyjet to reverse yesterday’s losses. Should Mr Cameron agree that expanding Europe’s largest hub presents greater economic benefits than that of Gatwick it would ultimately allow the budget airline to add over 40 new destinations and potentially create 70,000 jobs, according to the report. The jury remains out – this is now essentially a tossup between environmental concerns like noise and pollution and better economic output. Despite falling around 17% from the highs seen in April, shares in Easyjet have found buyers at the 1530/40p level over the past number of days. With most brokers bullish on the stock, the average target price is 1880p. Outgoing London Mayor, Boris Johnson could however present a problem if he succeeds in swaying the decision of the UK Prime Minister.


With all the Greek furore, it’s hard to believe that a month has passed and Non-Farm Payrolls will be released tomorrow in the US. Today’s ADP report is expected to see 218,000 jobs added last month, marginally better than last month’s 201,000. Any better number here could ramp up the monetary tightening speculation Manufacturing PMI is also expected to remain flat – a print of 53.4 is expected.


The Dow is slated to open 8 points higher at 17,700.