Yesterday’s euphoric market reaction to the proposed new Greece debt deal seems somewhat of an overreaction to an event that on the face it will do little to resolve Greece’s long term problems, and while as yet nothing has actually been agreed. Certainly the lukewarm response of European finance ministers to the proposals did rather jar in comparison to the market’s reaction. So what exactly did we get yesterday? On the face of it there does appear to have been some shifting of ground on the Greeks part on pensions and VAT, as well as higher taxes on business, though with unemployment at record levels, increasing the level of taxes on businesses on their profits, as well as their employees does sound rather counterproductive, given that an estimated 8,500 businesses have closed since the beginning of the year already. A number of key questions also remain including as to whether the proposals put forward go far enough to satisfy all the creditors, including the IMF, but if they are to be ratified, they need to be done so by in time for Thursday’s leaders’ summit. Furthermore in the event the proposals satisfy the creditors it is by no means certain that Tsipras will be able to get them through the Greek parliament in the absence of any deal to reduce the huge debt overhang. The time factor is also a concern given that Greece needs to repay the IMF €1.5bn by the end of the month, and Greece’s banks continue to see money leak away. Yesterday the ECB raised the ELA ceiling yet again and it seems likely it will have to continue to review it on a daily basis until such time the current bailout program comes to an end at the end of the month, or until negotiations break down again. So while it would appear that the Greek government has shifted some ground towards the creditors, the measures put forward yesterday appear to differ little from the same failed policies that have brought Greece to the situation where we are today. That’s not really something worth celebrating. On the data front today we have the preliminary French and German manufacturing and services PMI data for June, which given the weak ZEW readings seen earlier this month could have the potential to disappoint. Expectations are for some small improvements but that might be optimistic given the recent backdrop. France manufacturing PMI is expected to improve slightly to 49.6 from 49.4, but services is expected to slip to 52.6 from 52.8. In Germany manufacturing and services are expected to remain unchanged at 51.1 and 53 respectively. In the US recent adjustments to the monthly durable goods numbers but nonetheless they still remain fairly weak, with the core numbers excluding transportation pointing to a cautious US consumer. After a 0.2% decline in April, the May numbers are expected to show a rise of 0.5%. The manufacturing sector in the US continues to post mixed numbers with the latest PMI for June expected to show a slight improvement to 54.1 from 54.0, but the weakness in the oil and gas sector is likely to continue to be a cause for concern in the coming months, as projects get delayed and oil prices remain subdued. EURUSD – the previous highs in May at 1.1460/70 remain a key marker for a move towards the 1.1800 level, after last week’s failure to move above them. Support remains all the way back at last week’s low between 1.1200 and 1.1220. GBPUSD – the inability to push beyond the 1.5900 level over the last few days could well prompt a bit of a pullback towards 1.5600 on a break below the 1.5800/10 area. Long term support from the 1.4565 lows comes in at the 1.5400 level. EURGBP – the euro continues to remain under pressure with support currently at 0.7120, as well as the recent lows at 0.7080. We need to get back above 0.7220 to suggest a return towards the 0.7300 level. USDJPY – the US dollar remains under pressure with support at 122.50, and a break targeting the 121.80 level. Having managed to edge back above the 123.30 level we could well see a move back towards the 124.20 level. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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