With the big macro data out of the way, attention today and for the rest of the week will focus on the aftermath of the latest Chinese rate cut – its third in the past 6 months – which managed to boost the Shanghai Composite up by 3% overnight but not nearly enough to make up for losses in the past week; any resumption of the 6+ sigma volatility in the German Bund, which already has been jittery with the yield sliding to 0.52% only to spike to 0.62% shortly thereafter before retracing some of the losses; and finally Greece, which in a normal world would have concluded its negotiations during today’s Eurogroup meeting and unlocked up to €7 billion in funds for the coming months. Instead, Greece may not only not make its €770 million IMF payment tomorrow but according to ever louder rumors, is contemplating a parallel currency on its way out of the Eurozone.
This is how DB’s summarized the latest news out of Greece:
Greece will no doubt be front and centre at today’s Eurogroup meeting, however the likelihood of any material outcome looks fairly slim with more ‘progress’ likely to be a popular term used by officials in both camps. One topic which we await news on is the potential for increased haircuts on Greek collateral, which may or may not come to fruition depending on just how much ‘progress’ is made at today’s meeting. There was little in the way of new news over the weekend on the subject. Instead, German finance minister Schaeuble was quoted as warning that ‘experience in other parts of the world has shown that a country can suddenly slide into bankruptcy’ in German press FAS, while Eurogroup President Dijsselbloem reiterated that today’s meeting ‘won’t be decisive’. Perhaps of more interest, pressure appears to be growing internally from German Chancellor Merkel’s Christian Democratic Party to give up on Greece for the sake of the single currency with arguments suggesting that the Euro will be stronger should Greece leave (Bloomberg). As well as digesting European official commentary on just how much progress is being made post today’s meeting, one eye will also be on tomorrow’s €750m IMF repayment with Greek press Ekathimerini commenting that some Greek officials are in favour of not repaying should today’s meeting be deemed ‘not satisfactory’.
Back to Asia, where stocks rose in reaction to Friday’s NFP-miss and its implications on rate expectations, with the surprise PBoC rate cut further bolstering the Shanghai Comp (+3%) and Hang Seng (+0.5%). Nikkei 225 (+1.3%) rose with broad gains. However large tech names such as Sharp (-23%) and Toshiba (-16%) have witnessed its largest decline since 1974 and 2011 respectively, with Sharp reaching limit down amid reports that the Co. is mulling cutting capital by 99%, while Toshiba withdrew its FY 2015 forecast amid an ongoing accounting probe. JGB’s rose following Friday’s spill over buying in UST’s as yields fell with prospects that the Fed will keep rates lower for longer.
Focus turns to Greece with the market expecting today’s Eurogroup meeting to be downbeat after comments from Eurogroup President Dijsselbloem stating that the meeting will not see any accord reached on Greece. Greek banks have been pressured with the tomorrow’s pending EUR 750mln IMF debt repayment dragging the Athens Stock Exchange (-3.5%) lower while Greek bonds remain sideways and Bunds under selling pressure after a bout of technical selling. Meanwhile, source comments suggested that a senior Greek official called Treasury Secretary Jack Lew and said that Greece may not pay EUR 750mln back to the IMF, however Washington believes this is a bluff, according to sources. Furthermore, a senior Greek official stated that there do not have a ‘plan b’ and reiterated that the debt-stricken nation will reach its debt obligations. This uncertainty has caused European equities (Eurostoxx50 -0.9%) to reside in negative territory with the exception of the FTSE 100 (+0.3%), as basic materials are supported by the PBOC conducting further stimulus after cutting their 1 year lending rate and raising their deposit rate by 25bps to 5.1% and 2.25% respectively in an attempt to combat lacklustre inflation and growth in the world’s second largest economy. Furthermore, BMW (-0.6%) and Daimler (-0.3%) are seen lower after Chinese car sales are at its lowest level since Feb 2013 as Chinese consumers opt for domestic auto names.
The USD-index has gained ground on the major pairs across the board with the EUR exhibiting broad-based weakness amid uncertainty regarding Greek finances with source comments suggesting that Greece may not have enough funds after tomorrow’s IMF payment. GBP/USD has shrugged off the post-election euphoria and is seen lower with focus switching to today’s BoE rate decision which is not scheduled at its usual day of Thursday given the UK election disruption. NZD is the session’s laggard as participants continued to bring forward rate cut expectations, with OIS markets now pricing in an 46% chance of a 25bps rate cut at the June meeting. NZD/USD broke below 0.7400 and is on course for its largest decline since March 6th, with tech cross-related selling spurred by NZD/JPY breaking below its 200 DMA (0.8923) and AUD/NZD testing 1.0700 to the upside to trade at 2-month highs. Elsewhere, there are some large FX options today in AUD/USD at 0.7800 (3.8bln), NZD/USD at 0.7525-30 (1bln) and USD/JPY at 120.00 (2.3bln), 121.00 (1.7bln) due to roll of at the 1500BST NY cut.
