Financial markets are oscillating in a consolidative fashion this morning, unsure if the next catalyst will be of enough importance to push sentiment broadly in one direction and break out of the current range participants have been accustomed to. The DXY is giving back some of yesterday’s gains with the euro witnessing an underlying bid tone as we move into the North American open; US equity futures are following the relatively pessimistic tone seen in Europe as the Dax and Stoxx have both shed roughly 1% on their session as we go to print. While some of the downside risks have subsided in the near term for Greece’s banking system given the increase in the ELA window, EU leaders and Greece’s creditors are pressing for a deal to be done today, hopefully allowing enough time for the Greek government to ratify a potential new deal through parliament. The tricky part will be that even if a deal is agreed to today, the concern lies with Syriza’s minority coalition partner the Independent Greeks, as they have publicly stated they will not agree to the current cash-for-reforms deal that is being negotiated without a specific reference to a debt write-down. The sabre-rattling from the more radical camp of the Syriza party and the Independent Greeks increases the potential for a snap election if a deal doesn’t get passed through parliament, though it would be hard to imagine with Greece this close to bankruptcy politicians pulling the rug out from under a deal if Tsipras does manage to secure it. Given the majority of the Greek people favour staying within the Eurozone and continuing to use the common-currency, the government could face serious backlash if a negotiated agreement fails to make it through parliament and leads to a Greek exit from the zone.
On the economic data front, the business climate survey in Germany from the Ifo Institute was released earlier this morning, and showed a slight drop from the May reading with a print of 107.4 compared to the previously registered 108.5. Both the sub-indices of current conditions and the expected outlook fell by roughly the same amount, suggesting the Greek debt negotiations could be clouding the economic outlook moving forward. Today’s report is in contrast to what we saw yesterday with stronger purchasing manager activity in both the manufacturing and service sectors, though it warns a pause in the accelerating momentum could occur if the Greek situation intensifies and they are forced out of the bloc. The euro is slightly higher against the greenback this morning, though buying interest has not re-emerged with enough force to recoup all of the losses experienced yesterday.
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