Apologies for the late sending of his comment.
European Stock markets have been pummelled over the past 4 days as investors run and hide on the back of the increased risk of GREXIT. PM Tsipras continues to talk tough saying he will not be bullied into accepting the terms the ECB and IMF have laid out. I really do not understand how he can risk the Greek population’s livelihood just so that he can be seen as the “tough guy”. This is not a time to play silly games because the resulting fallout for Greece will be a financial catastrophe that will last for a generation. The people who were seen demonstrating in the street last night against austerity should hang their heads in shame. They simply do not comprehend the damage that will be caused when the ECB halt the ELA and bailout funds (€7bn) to the CB of Greece, not to mention the capital controls that will follow. People will not be able to transfer funds abroad, their funds will be locked and even the simple act of withdrawing money from the ATM will be a luxury. Tourism and investment for a while will stop as investors gauge the market.
There is a meeting in Luxembourg (as we speak) of key Eurogroup members to discuss the Greek fiasco. What we do know is the 30 June is d-day. If no agreement is reached the ECB could announce a halt to ELA and capital controls which could pretty much force Greece to default and exit the EU. Chancellor Merkel doesn’t want to see it, in fact no one wants to see it. But at some point Troika will throw in the towel because they just cannot get through to the Greeks.
Last night post FOMC, the USD edged higher as they cut their forecast for US growth and lowered the interest rate hike expectations for 2016. The median FED funds rate remained at 0.50-0.75% for 2015, however for 2016 the median for 2016 fell by 0.25% to 1.50-1.75%, while the median for 2017 also fell by 0.25% to 2.75-3.00%. Bottom line we still think there will be 2 rate hikes in 2015, Sept and Dec. To add to the USD’s woes UK retail sales data came in above-forecast following up on yesterday’s supper strong wage growth numbers and hawkish comments from the BoE.
For now we all sit and wait and HOPE that Troika and the Greeks defy the odds and agree to an “eleventh hour” agreement. This will be hailed as a win win and expect bonds, stocks and EUR to rally like there is no tomorrow. G-d help us all should the opposite happen.
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