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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