John J Hardy
In this latest webinar, Saxo Bank's head of FX strategy John Hardy analyses the market after the central bank of Turkey announced a huge rate hike.
Article / 24 June 2015 at 7:00 GMT

Morning Markets: Acropolis now




  • Germany:   Ifo Business Climate Index (0800 GMT)
  • United States:  Weekly Mortgage Applications (1100 GMT)
  • United States:  GDP third estimate (1230 GMT)
  • United States:  EIA Weekly Petroleum Status Report (1430 GMT)
  • Greece: Greek PM Tsipras meets ECB, EU & IMF officials in Brussels (1200 GMT)
  • Greece: Eurozone finance ministers meeting on Greece (1700 GMT)

As Greek prime minister Alexis Tsipras heads into another grueling round of Brussels meetings in his ongoing battle to persuade his creditors to unlock some EUR7 billion of emergency cash to avert default on June 30, the murmurs of mutiny back home are growing ever louder.

But while many observers reason that default, followed by Grexit, would be the only logical conclusion to this whole sorry saga, it's worth remembering the geopolitical and strategic factors that argue against a Greek goodbye. Most compelling among these is the fact that the US would not welcome any loosening of ties with Greece – a key NATO ally – and would be aghast at any prospect of the Greeks cosying up to Russia and Vladimir Putin. For that reason alone, pressure from the US to keep Greece within the fold should soon emerge.

Elsewhere, things are rather thin on the data front. Today’s Ifo business survey update is likely to show a modest dip in the German business climate. Over in the US, housing is headed for stronger growth in the second half of the year, and today's mortgage applications figure should show an improvement. Furthermore, the revised US GDP report should reveal good news about the economy's first quarter performance.

Market signals

Asian session

  • Japan's Nikkei N225 rose 0.5% today to reach an 18-year peak
  • BoJ policy board minutes – members forecast higher inflation
  • A light day of data has seen USD/JPY trade above 124.11
  • The Nikkei 225 Index trades higher along with other Asian indices.
  •  A Chinese economic index released overnight proved a little bit lower than previously
  • AUDUSD and NZDUSD trade at .7726 and .6865 respectively.
  • In the Yen crosses, we see AUDJPY and NZDJPY trade at 95.73 and 85.06 

Forex ahead

  • Front end risk reversals in EURUSD are popular, 300m per leg trading at differential 2.0 
  • Monday strikes in EURUSD options are trading at around the 12.0% level 
  • EURUSD one month straddle opening today at 11.9% 
  • As USDJPY rallied, front end volatilities were supported. 

From the Floor

Alpine oddity. ”I’m surprised that USDCHF has not responded more positively to the Greek negotiations,” says Hardy

Bonds fillip. “There’s been quite an uptake in risk-on sentiment supporting markets here,” says Boye

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Food fight
With Alibaba injecting a cool $1bn into Koubei, the Chinese food and consumerables delivery app market is about to get very messy, says Neil Flynn

RBNZ in a pickle
When New Zealand's Minister of Finance says the Reserve Bank governor has been “out of the zone" you know there's likely to be change somewhere, says Max McKegg

Rebound hopes
Q1 was disappointing, but James Picerno says that the US is heading for a H2 rebound, helped by an improving jobs market, rising home sales, easier lending and rising consumer spending.

Politics rules. 
Juhani Huopainen believes that while the Eurozone could handle even a worst-case scenario Greek default in financial terms, the political fallout from default could still force a Grexit.

QE is working
Tentative green shoots of a nascent Eurozone recovery can be seen in the region's latest data releases so Stephen Pope reckons that the ECB's bond buying programme is having the desired effect. But Greek worries still loom large.

Deal/No deal
Whispers from Brussels suggest that a Greek debt deal is nigh. Really? Ken Veksler cautions us not to count our chickens before they're hatched.

Sound Sterling
EURGBP has been travelling in a sideways chop for months now but Clive Lambert forecasts it may plunge off a cliff because of the Greek drag.


Rule Britannia. Sterling should benefit from the euro's Greek-inspired rout. Pic: iStock

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Juhani Huopainen Juhani Huopainen
I have to correct your interpretation, Clare. Greece's unilateral default would not lead to a Grexit because of political fallout, but for very practical reasons - if the ECB had to interpret Greece being insolvent, it could not allow the national central bank to provide emergency liquidity assistance, which would a) topple the banks unless capital controls were introduced and b) leave the Greek government unable to pay its bills unless it introduced a parallel currency.

It is difficult to define what an exit from a monetary union is, but being cut off from the rest of the EZ and the Eurosystem (capital controls, no ELA) and having a new official currency, at least a parallel one, qualifies as Grexit in my books.
Clare MacCarthy Clare MacCarthy
Oh but Juhani, I didn't imply that politics would trigger a Grexit. I agree with you that if it happens it'll be for the procedural/systemic reasons you outline. But the Greeks ain't going anywhere. At least not yet. And while pressure from the US (probably in the form of some gentle leaning on M. Lagarde) will soon appear, that alone will not be the most cogent reason in favour of Greece staying put. Greece's debt is huge for Greece but tiny for the EU. And that's why a solution (however temporary) will be found over the next 24 hours. The only thing that might muck this up is Syriza's lunatic leftist fringe who might well vote No in the Greek parliament next Monday. Then we'll see the sparks fly.
Clare MacCarthy Clare MacCarthy
PS Your definition of monetary union exit makes sense. AFAIK no formal mechanism exists to facilitate an exit which means that simply cutting off the oxygen supply would be a de facto goodbye. During Denmark's first Maastricht referendum back in 1992, Jacques Delors told me that "Non, non, once you're in you can't ever leave." We'll see :-)
Juhani Huopainen Juhani Huopainen
I just wanted to clarify my point that in the midst of rhetorical storm it is important to look what is "real" in terms of numbers and what is "real" in terms of politics. They are two different animals, and understanding them both and the interaction between the two is important.

My view is that Greece does not pass debt sustainability analysis, and no amount of can-kicking will change that. But the losses will not be catastrophic. Greece could very well be better-off defaulting and exiting/being forced to exit the EMU - I don't know. In terms of numbers it could be true, but politics could change that.
Juhani Huopainen Juhani Huopainen
Incompetent policy in Greece after a default and exit is not hard to imagine. Some sort of retaliation from the creditor countries is not hard to imagine either. As I don't see kicking the can changing the solvency- and competitiveness issues, I'd like to see the default or forgiveness sooner rather than later. It would be great if Europe would solve its problems, even the embarrassing ones.

My love of crashes, breakups, defaults and distress has its roots in optimism. By accepting numbers and conducting policy in line with the numbers things might become better. I know many disagree. Nordea's ex-chief economist argued with me convincingly that with the dysfunctional state of politics, muddle-through and kicking the can is the best we can hope for. It might be true, but I certainly do not hope so.


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