With the new and revised (until it is re-revised again to some future date), Greek D-Day set for today's third in the past 2 weeks Eurogroup meeting, every favorable headline serves as a springboard for ES-buying algos, while every negative headline is promptly ignored. And since this is Europe's style trial ballooning, there have been many of both with just these two hitting in the last hour:
- GREECE, EURO ZONE NEAR DEAL ON PACKAGE, REUTERS CITES UNIDENTIFIED GREEK OFFICIAL
- GREECE DID NOT GO FAR ENOUGH IN THEIR LATEST PROPOSAL: GREEK GVOERNMENT SPOKESMAN
Guess which one pushed ES into the green? Of course, what the "bullish" headline did not inclide was the subtext which was that "We have covered four fifths of the distance, they also need to cover one fifth," according to the Greek the official said, adding Greece wanted to clinch a deal on Friday, but that it would not back down in the face of pressure from the Eurogroup. "The official, speaking on the condition of anonymity, said Greece had made a lot of concessions to reach an agreement and that the euro zone should show some flexibility too."
In other words, more hope interpreted as fact.
And just in case today's summit achieves nothing, don't you dare sell your stocks, because, drumroll, another meeting may be right around the corner, providng many more such risk-ramping opportunities as the market prices in yet another successful Greek deal and forgets to sell-off on the disappointment. Also from Reuters which is really covering all bases, because remember that the biggest source of revenue for Reuters is not resporting the news but FX trading, hence FX vol is quite welcome:
Euro zone finance ministers will try again on Friday to break a deadlock over Greece's urgent need for further financing but it may take an emergency summit of the currency bloc in the coming week to clinch any deal.
With EU paymaster Germany and the new radical leftist-led government in Athens digging their heels in over demands that Greece stick to strict austerity conditions in its international bailout programme, the two sides seemed far apart hours before a crucial Eurogroup meeting in Brussels.
"The Greek government has done all it should at every level in an effort to find a mutually beneficial solution," government spokesman Gabriel Sakellaridis told Mega TV.
"We are not discussing the continuation of the (bailout) programme," he said. "The Greek government will maintain this stance today, although conditions have matured for a solution to be found at last."
So aside from Greece, which is what everyone's attention will be glued on, which starts at 14:00 GMT and whose press conference is tentatively scheduled for 18:00 GMT but will either be substantially delayed, or not even take place if for the third time Greece is unable to reach a deal, what else is moving markets?
European equities have been fairly resilient to this morning’s FX moves and concerns around Greek negotiations, and although the major bourses trade marginally lower, they have drifted within yesterday’s range. The FTSE 100 is outperforming its peers due to strength in index members, with Standard Life higher by 2.9% after an earnings update, Weir Group higher by 1.6% after a positive broker move pre-market, and the prospect of a dovish BoE supporting prices.
Ahead of the Eurogroup meeting attention will be paid to any comments from the German state after they rejected yesterday’s Greece proposal, comments from Eurogroup officials as they arrive at today’s meeting, and any draft documents leaked before the official release. Other than that focus will fall on today’s only tier 1 US data release with Manufacturing PMI due at 1445GMT and it is also worth bearing in mind that there are several options expiries across fixed income and equity futures.
Fed’s Bullard (Non Voter - Soft Hawk) reiterated his call for the Fed to start raising rates, saying zero is not the right rate given the US economy. Bullard added that removing “patient” at March meeting would allow but to obligate Fed to raise rates in June. (RTRS)
Despite a mixed Wall Street close and ahead of today’s Greece/Eurogroup crunch talks, the Nikkei 225 (+0.4%) traded at its 15-yr highs after extending on yesterday gains, to touch the highest level since May 2000. The ASX 200 (-0.4%) fell for a 2nd consecutive day, dragged lower by energy stocks which were weighed on by the continued oil sell-off. Chinese, Hong Kong, South Korean, Taiwanese and Singapore stock markets remained closed for a second day due to the Lunar New Year.
EUR and GBP have been in focus during trade this morning as uncertainty around a compromise in Greece continues to weigh on sentiment and dovish comments from the usually hawkish BoE member McCafferty. GBP saw further selling pressure on a technical break below yesterday’s low and 1.5400 and after overnight comments from one of the most hawkish members on the BoE who made relatively dovish remarks by saying that it is plausible that interest rates could turn negative at some stage as the MPC has ‘to consider all eventualities’.
Selling in EUR and GBP this morning have driven FX markets and caused the USD to move to fresh intraday highs and hence weakness in commodities names. CAD has been a notable outperformer with USD/CAD paring some of yesterday’s upside and CAD strength observed across major CAD crosses.
Gold, silver and crude futures all fell to intraday lows in early European trade as the USD strengthened to gain 0.2% before the US joined the market. Oil continues to slide in the wake of data showing stockpiles in the US sit at record highs although March WTI futures trade off yesterday’s low and firmly above USD 50/bbl. Commodities specific news-flow could remain quiet today given all this week’s inventory data is out of the way and China remain away from the market due to the Lunar New Year, however greater attention has been paid to the US Baker Hughes rig count in recent weeks which is due for release at 1pm Eastern.
Summary: European shares remain little changed, though off intraday lows, with the basic resources and autos sectors outperforming and real estate, media underperforming. Euro-area finance ministers hold emergency talks with Greek officials today on maintaining funding. Euro-area, German, French services PMI above estimates, manufacturing PMI below. U.K. January retail sales, budget surplus below estimates, retail prices fall most on record on annual basis. The U.K. and Swiss markets are the best-performing larger bourses, Dutch the worst. The euro is weaker against the dollar. Portuguese 10yr bond yields fall; Spanish yields decline. Commodities little changed, with copper, zinc underperforming and natural gas outperforming. * U.S. Markit manufacturing PMI due later.
- S&P 500 futures up 0.1% to 2096.4
- Stoxx 600 up 0.1% to 381.7
- US 10Yr yield down 1bps to 2.1%
- German 10Yr yield down 0bps to 0.38%
- MSCI Asia Pacific up 0.1% to 144.9
- Gold spot down 0.2% to $1204/oz
- 10 out of 19 Stoxx 600 sectors rise; basic resources, autos outperform, real estate, media underperform
- Euro down 0.28% to $1.1336
- Dollar Index up 0.11% to 94.51
- Italian 10Yr yield down 2bps to 1.59%
- Spanish 10Yr yield down 4bps to 1.51%
- French 10Yr yield down 1bps to 0.69%
S&P GSCI Index up 0% to 418.5
- Brent Futures up 0% to $60.2/bbl, WTI Futures down 0.2% to $51.1/bbl
- LME 3m Copper down 0.6% to $5717.5/MT
- LME 3m Nickel up 0.3% to $14025/MT
- Wheat futures up 0.3% to 521 USd/bu
Bulletin Headline Summary
- Ahead of today’s Eurogroup meeting attention will be paid to any comments from the German state after they rejected yesterday’s Greece proposal and comments from Eurogroup officials as they arrive at today’s meeting from 1400GMT
- EUR and GBP drive FX markets in early European trade as yesterday’s lows are taken out, a compromise between Greece and the EU hangs in the balance, and dovish comments from BoE’s McCafferty weighs on prices
- Treasury yields slightly lower in overnight trading after remaining within narrow ranges yesterday as statement suggesting a German rejection of a Greek proposal on loan extension was followed by indications Germany regarded the proposal as a basis for negotiation.
- Greek Finance Minister Varoufakis returns to Brussels for a third meeting in two weeks with his euro-area counterparts in an effort to strike a deal that will let Europe’s most-indebted country avoid default
- Bloomberg Greece Sovereign Bond Index shows those with money at stake aren’t seeing a significant increase in the chances of a euro-zone departure
- New rules intended to make European banks stronger may end up encouraging them to get bigger, too
- Major central banks are buying up so much government debt that investors have little choice other than to funnel ever more of their money into riskier corporate debt
- Britain posted its biggest budget surplus in seven years in January as a deadline for filing personal income-tax returns boosted payments to a record
- A rebel offensive that pushed Ukrainian troops out of the strategic town Debaltseve showed few signs of relenting amid a diplomatic push to preserve last week’s truce
- The U.S. and Iraq are planning a spring offensive to retake the city of Mosul that will require 20,000 to 25,000 Iraqi troops to defeat 1,000 to 2,000 Islamic State fighters, according to an official from U.S. Central Command
- Sovereign 10Y yields mostly lower led by Greece (down 8bps). Asian, European stocks mixed; U.S. equity-index futures slightly higher. Brent and WTI rise, gold and copper drop
US Econommic Calendar
- 8:30am: CPI benchmark revisions
- 9:45am: Markit US Manufacturing PMI, Feb. preliminary, est. 53.6 (prior 53.9)
As usual DB's Jim Reid does the full overnight event summary
Its face-off Friday in Brussels today (2pm start London time) with little hint as to which way things will go for Greece and the EU at the latest Eurogroup finance ministers meeting. On the positive side it is a proper face to face meeting which wasn't always assured, and reports suggest that Tsipras and Merkel spoke at length last night which shows dialogue has occurred at the key level. However on the negative side Germany were initially quite disdainful of Greece's request for a loan extension, calling it a "Trojan Horse" designed to change the terms of the remaining aid. They then went on to suggest that Greece submit no more than a three-sentence letter in requesting an extension including a promise to complete the program.
It’s looking more likely that the more positive headlines generated from Merkel’s phone call with Tsipras were aimed at toning down initial comments from German finance minister Schaeuble rather than highlight any sort of contrasting views within Germany. Along with the ‘Trojan Horse’ comment, a spokesman for the Finance Minister was quoted as saying on Reuters that the proposal ‘goes in the direction of bridge financing without fulfilling the demands of the programme’. Following Chancellor Merkel’s phone call with PM Tsipras, Economy Minister Gabriel appeared to strike a more conciliatory tone however and was quoted on Bloomberg as saying ‘I would advise that we don’t rush to say yes or no, but that we engage in talks’.
The comments which appeared in yesterday’s press from various European officials do appear more mixed on the whole. The EC’s Juncker noted that the letter was a positive sign and could pave the way for compromise. French PM Valls meanwhile said that the letter was encouraging and that a quick solution is possible. However on the other side, Finish PM Stubb appeared to follow a similar line to Schaeuble saying that it lacked a commitment to structural reforms. US Treasury Secretary Lew has attempted to bring some balance to some of the comments however after speaking to Varoufakis, Dijsselbloem and French finance minister Sapin. Lew was reportedly urging both sides to tone down recent rhetoric and reach a pragmatic compromise (Bloomberg).
For Greece to ultimately receive any sort of funding, a mutual agreement needs to arise between both sides. Comments last night suggest that there is perhaps conflicting views in the European camp (even within Germany itself) which would certainly increase the risks to any sort of agreement on the proposal. DB’s George Saravelos noted that yesterday’s Greek proposal did not go as far as promising to not reverse previously-implemented legislation, but did in effect go halfway there. Clearly a lot to still be decided and plenty of risks remain despite yesterday’s step forward.
In terms of markets yesterday, the announcement of the Greek letter leant support to both equity and credit markets in Europe. The Stoxx 600 (+0.27%), DAX (+0.37%) and CAC (+0.71%) all eventually finished firmer whilst Greek equities also bounced over 1%. The negative comments around midday out of Germany did however create some doubt in the markets, albeit fairly short lived. The Stoxx 600 actually declined 0.5% following the headlines coming off intraday highs of +0.4%, only to then firm slightly into the close after more conciliatory comments emerged. Crossover meanwhile closed 6bps tighter and the Euro weakened following the Schaeuble comments to finish 0.25% lower versus the Dollar at $1.137. Peripheral bond markets also had a better day with 10y yields anywhere from 2bps to 5bps tighter. So not a lot of fear seemingly.
It was a quiet day data wise in Europe yesterday with French CPI falling more than expected (-0.4% yoy vs. -0.3% expected) although Euro-area consumer confidence did surprise to the upside (-6.7 vs. -7.5 expected). That flash print was in fact the highest since 2007 with the benefits of lower energy prices and ECB QE perhaps offsetting the Greek headlines for now. Just on the ECB, yesterday saw for the first release of monetary policy minutes from the Central Bank which covered the January 22nd meeting. Given the ECB holds a press conference following every policy meeting, the minutes didn’t appear to offer much new news although DB’s Mark Wall notes that over time the release of these minutes could help give a sense of the evolution of debate inside the council.
Unlike in Europe, US equities appeared to trade with little obvious direction yesterday. The S&P 500 finished the day -0.11% although in reality bounced around over most of the session as Greece, oil, data and earnings all played a part. Energy stocks (-0.78%) weighed on overall sentiment as WTI (-1.88%) and Brent (-0.53%) both declined for a second consecutive day. In fact both markets traded as much as 3-4% lower intraday after a supply report from the American Petroleum Institute, although markets then recovered when a similar EIA report suggested that stockpiles weren't quite as high as initially thought – although still at record levels.
There was a similar lack of conviction in Treasuries yesterday as the benchmark 10y yield bounced around before eventually settling 3.4bps higher at 2.114%. The Dollar (DXY +0.2%) meanwhile closed firmer. Elsewhere data on the whole was mixed. Initial jobless claims (283k vs. 290k expected) continued the recent run of strong employment report with the four-week average dropping to 283.3k marking a three month low. The Philadelphia Fed business outlook for February disappointed however as the 5.2 reading fell 1.1pts from the January print. Finally the leading indicator dropped one-tenth to +0.2% in January (vs. +0.3% expected).
Looking at the early morning trading in Asia this morning, having closed at a 15-year high yesterday, the Nikkei (+0.31%) has extended gains this morning and the Topix (+0.24%) is also firmer despite a weaker than expected manufacturing PMI print for the region (51.5 vs. 52.5 expected). Credit markets in Japan are unchanged. Elsewhere the ASX (-0.38%) is weaker whilst oil markets have rebounded around a percent this morning as we go to print. The Euro (-0.04%) is more or less unchanged heading into today’s meeting.
Away from the obvious focus on the Eurogroup meeting this afternoon, attention will also be on the preliminary February PMI prints in Europe this morning where we get the services, manufacturing and composite prints for France, Germany and the Euro-area. As well as this, we get PPI out of Germany and retail sales for the UK. Across the pond this afternoon, we’ve just got the manufacturing PMI due.