Global daily insight 10 july 2015

Page 1

Daily Insight Greece D-day scenarios

Group Economics Macro & Financial Markets Research

Nick Kounis +31 20 343 5616

10 July 2015    

We look at scenarios for the upcoming European D-day meetings on Greece There is a high risk that a deal proves elusive, though it is a close call We do not see a Greek exit from the euro as representing a Lehman moment Positive scenario: two or three-year ESM deal for Greece, with compromise on debt

Europe has presented Sunday as D-day for Greece

Negative market reaction, but no Lehman

We are now entering a few days that could prove decisive for

Financial markets will most likely react negatively to a no-deal

Greece’s future in the eurozone. Indeed, European leaders

scenario where Grexit looks probable, but we do not see it as a

presented Sunday’s EU Summit as being make-or-break for

Lehman moment. Exposures of the eurozone banking system

Greece. Either there would be a deal, or euro exit would

to Greece are modest and relatively transparent. At the same

become a distinct possibility. It is likely that a picture of the way

time, we do not think other eurozone member states are in a

it is going will start to form before that. Reactions to Greece’s

similar situation to Greece and ready to follow in its footsteps.

reform proposal (due before midnight Thursday) could already give an indication, while Saturday’s Eurogroup could be

Authorities to intervene with force if necessary

crucial. Of course, missed deadlines are a speciality in the

There is a risk that peripheral government bond spreads surge

eurozone, but Greek banks look unlikely to be able to last too

to stress levels. In that event, the European authorities will

much longer under the current liquidity regime. So the Greek

react with force. In the near term, the ECB could decide to step

banking sector may make this a hard deadline this time.

up QE, but if that does not have the required impact, we would expect the central bank to activate the OMT. QE is skewed

Deal may prove elusive

toward core government bonds, while the OMT could focus on

It is a close call what the outcome of the D-day meetings will

‘unlimited’ purchases of peripheral government bonds. To

be. The Greek debt crisis has been characterised by

qualify for the OMT, member states need to be in an ESM

unforeseen twists and turns. However, reaching a deal of the

programme. However, this includes a precautionary credit line,

next few days looks likely to be very challenging and it may

which has very limited conditions.

well prove elusive. The Greek government will be asked to accept a reform programme that is tougher and more

Positive scenario: two or three-year ESM deal

extensive than the short-term extension it failed to agree to

The positive scenario is that Greece and the eurozone agree

over the last four months (and was rejected in the referendum).

to a two or three-year ESM deal. That would mean that Greece

The economic and fiscal outlook is now weaker. In addition,

would need to accept tough reforms and fiscal targets.

the Greek government appears to be looking for upfront debt

Meanwhile, a middle way could be found on debt, where

relief, while the Eurogroup seems only ready to decide on this

incremental debt relief (in the form of maturity extension) is

if Greece implements the measures in a programme.

exchanged for delivery of reforms by certain points in time. Alternatively, Greece could accept debt rescheduling at the

No deal could set scene for Grexit

end of the programme.

A euro exit scenario could materialise if the economic pain of staying in the euro without financing for the government and

There are risks in the positive scenario. For instance, the deal

the banks was judged to be too much by the Greek authorities

would still need to be passed through various national

and public. They may feel they could not accept the necessary

parliaments. Even if it is passed, there is a risk that Greece

conditions for a new programme. The first stage could be the

finds it difficult to stick to the programme in coming months.

adoption of a parallel currency.

The economy looks set for a sharp contraction, which is not the ideal background to be implementing tough measures.


2

Greece D-day scenarios – 10 July 2015

Financial markets Currency markets

Close

Change 1 day

Change 5 days

Change YTD

EUR/USD USD/JPY

1.1057

0.1903

-0.5129

121.54

0.1648

-1.0180

1.4694

AUD/USD

0.7460

0.1746

-0.8374

-8.7462

USD/CHF

0.9476

-0.0211

0.7656

-4.6968

NZD/USD

0.6745

0.0297

0.8071

-13.4924

GBP/USD

1.5370

-0.0650

-1.2845

-1.3289

USD/SGD

1.3495

-0.0222

0.2675

1.8106

USD/CAD

1.2712

0.0393

1.0975

9.3882

Bond markets

Close

Change 1 day

Change 5 days

-8.6047

Change YTD

2-year German Govt Bond yield

-0.2560

0.0070

-0.0080

-0.1580

10-year German Govt Bond yield

0.7190

0.0480

-0.1260

0.1780

Yield curve Germany

0.9750

0.0410

-0.1180

0.3360

2-year US Treasury Bond yield

0.6050

0.0199

-0.0220

-0.0595

10-year US Treasury Bond yield

2.3409

0.0198

-0.0414

0.1697

Yield curve US

1.7359

-0.0001

-0.0194

0.2292

US 2-year sw ap rates

0.8712

0.0432

-0.0118

-0.0231

US 10-year sw ap rates

2.4457

0.0599

-0.0423

0.1596

US sw ap curve

1.5745

0.0167

-0.0305

0.1827

EU 2-year sw ap rates

0.1125

-0.0165

-0.0115

-0.0625

EU 10-year sw ap rates

1.1562

0.0112

-0.0338

0.3442

EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month

1.0437

0.0277

-0.0223

0.4067

-0.0180

0.0000

-0.0030

-0.0960

0.2835

0.0002

-0.0002

0.0279

JPMorgan EMBI Plus Sovereign S

394.4600

-11.9300

10.0500

7.0200

Equity markets

Close

Change 1 day % Change 5 days %Change YTD%

Nikkei 225

19,856

0.60

-3.33

Hang Seng Index

24,393

3.73

-7.19

3.34

Hang Seng China Enterprises Index

11,446

3.05

-10.47

-4.49

13.78

Australian Stock Exchange S&P/ASX 200 Index

5,491

0.37

-0.85

1.49

Singapore Straits Times Index

3,267

-0.54

-1.82

-2.90

Euro Stoxx 50 Index

3,420

2.78

-1.25

8.70

S&P 500 Index

2,051

0.23

-1.26

-0.37

MSCI World Daily Total Return Gross USD

779

0.73

-2.06

1.47

AEX Index

470

2.38

-1.47

10.72

1.58

24.11

4.01

Chicago Board Options Exchange Volatility Index

Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz

20

Close

Change 1 day % Change 5 days %Change YTD%

218

1.08

-2.89

-5.37

1,159

-0.03

-0.81

-2.18 -0.86

Generic first NYMEX Crude Light future

53

0.06

-7.24

Generic first Brent Crude Oil future

59

2.73

-5.57

2.23

5,630

1.99

-2.85

-10.63

572

0.00

-2.60

-2.97

LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source Bloomberg


3

Greece D-day scenarios – 10 July 2015

Day

Date

Time

Country

Period

Latest outcome

Consensus

Monday Monday Monday

06/07/2015 06/07/2015 06/07/2015

08:00:00 15:45:00 16:00:00

DE EC US

Manufacturing orders - % mom ECB announces weekly QE details ISM non-manufacturing, index

Key Economic Indicators and Events

May

1.4

-0.1

0.3

Jun

55.7

56.3

57.0

Tuesday Tuesday Tuesday Tuesday

07/07/2015 07/07/2015 07/07/2015 07/07/2015

08:00:00 09:00:00 14:30:00 16:00:00

DE CH US US

Industrial production - % mom Foreign currency reserves - CHF mln Trade balance - USD bn US Job Openings by Industry

May Jun May May

0.9 517488 -40.9 5376

0.1

0.3

Wednesday Wednesday

08/07/2015 08/07/2015

21:00:00

US PL

Fed Reserve consumer credit - USD bn Reference rate - %

May Jul 8

20.5 1.5

18.7 1.5

Thursday Thursday Thursday Thursday Thursday Thursday

09/07/2015 09/07/2015 09/07/2015 09/07/2015 09/07/2015 09/07/2015

01:50:00 03:30:00 09:30:00 13:00:00 13:00:00

JP CN NL GB GB KR

Machinery orders private sector - % mom CPI - % yoy CPI - % yoy Policy rate - % BoE size of asset purchase programme - GBP bn Policy rate - %

May Jun Jun Jul 9 Jul Jul 9

0.6 1.4 1.0 0.5 375 1.50

-4.1 1.3 0.5 375 1.50

Friday Friday Friday Friday

10/07/2015 10/07/2015 10/07/2015 10/07/2015

10:30:00 15/07/2015 15/07/2015 15/07/2015

GB CN CN CN

Trade balance - GDP mln M2 money growth - % yoy Aggregate Financing - CNY bn New loans - CNY bn

May Jun Jun Jun

-1202 10.8 1219.6 900.8

-2160 11.0 1400.0 1050.0

ABN AMRO

-42.0

1.5

0.8 0.5 375 1.50

Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)

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