European Open: Greece, ECB And Data In Focus

Another very busy day lies ahead for the markets as Greece continues negotiations with its creditors, the European Central Bank announces its latest monetary policy decision and a wide range of data is released, including the U.S. ADP non-farm employment change, which could provide early insight into Friday’s jobs report.

The Greek situation is still barely changed after both sides put together its put together comprehensive proposals based on recent negotiations, which we can safely assume will be far apart on key issues of pension and labour market reform and will therefore be rejected. Eurozone officials have already declared that Greece’s proposal is insufficient and is not on the table.

Greek Prime Minister Alexis Tsipras is due to meet with European Commission President Jean-Claude Juncker this evening but I fail to see what can be achieved from this if both sides don’t come bearing concessions, and pretty significant ones from Greece’s perspective. Eurogroup Head Jeroen Dijsselbloem stated outright yesterday that they have no intention of meeting Greece half way, while Tsipras has election promises to uphold rendering these discussions rather pointless.

The only way for any progress to be made here is for an ultimatum be put to a Greek government vote or referendum, effectively freeing the Syriza government of its pre-election promises. Unfortunately, this only seems likely once the country is backed into a corner, either when it is about to default on its debt or when the ECB forces larger haircuts on Greek debt as part of the emergency liquidity assistance (ELA) program or even worse, cuts Greece off altogether and deems it insolvent. This would be a drastic and undesirable scenario for all concerned.

The ECB will announce its latest policy decision today and no change in rates or quantitative easing (QE) is expected. Eurozone bond yields rose yesterday after inflation data showed prices rising faster than expected at 0.3% in May, while the core reading was 0.9%. While this is unlikely to even prompt a discussion among the ECB about tapering its QE program earlier than September next year, it will invite many questions and could be the cause of significant volatility today, particularly in bond markets.

Greece is likely to be another popular topic at the press conference due to the important role played by ECB President Mario Draghi in discussions on behalf of the ECB. I can’t imagine Draghi will give too much away although he may use the opportunity to pile pressure on Greece and stress the importance of them accepting a deal. If Draghi drops the slightest hint that Greece may be cut off from the ELA program, there could be mayhem and Greek yields would surely soar.

There is lots of data also being released today to fill in those periods of relative calm between Greek rumours and announcements and the ECB press conference. Services PMI readings will dominate much of the European session and we’ll also get the latest unemployment and retail sales figures from the eurozone. This will be followed later by the latest ADP figure for May which traders will be looking to for insight into Friday’s official non-farm payrolls figure, although history would suggest that little can be learned from it.

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