Greece’s Creditors Turn Up the Heat

Greece has been forced to extend capital controls for yet another day today, and as banknotes are becoming increasingly scarcer, Greece’s creditors are turning up the heat on Prime Minister Alexis Tsipras to devise a plan to stay in the euro.

Yesterday former finance minister Varoufakis resigned despite the “no” for further austerity measures going through by a significant margin. In his resignation letter he mentioned that he felt overwhelming negative pressure from his European counterparts as they sought to freeze him out of meetings that were taking place.

At this point, European finance ministers are waiting for a proposal to re-start bailout talks, as the onus is on Greece to act quickly in order to avoid a meltdown of its banks which the government said will remain closed until tomorrow.

In a reaction to the “no” vote that was declared late Sunday, equity markets dropped yesterday albeit by a smaller amount than most were expecting, seemingly already discounting the probability of the event.

Yesterday the German DAX fell 1.52% to 10,884 while the French CAC 40 Index fell 2.01% to 4,709.50. The Euro STOXX 600, an index representing companies across 18 European countries, fell 1.24%. On the fixed income side the German bund rallied, the flight to safety trades took centre stage, with the 10-year bund closing 2.6 bps tighter to 0.76%. On the other hand, peripheral sovereign bond yields rose quite significantly, with the Italian and Spanish 10-year yields increasing 14 and 16bpts respectively, while the Portuguese 10 year increased 24 bps to 3.15%.

Tsipras heads to Brussels today in a last-ditch attempt to secure a rescue from European leaders and keep his country in the euro region. Markets traded relatively flat this morning as investors await the outcome of the meeting, where investors will be looking for signs of a possible agreement. Ahead of the summit and in a meeting between German Chancellor Merkel and French President Hollande, Merkel reiterated that the ‘door for talks remains open’ but that ‘time is running out’ and that it will be ‘very important’ for Tsipras to present a plan for moving forward at today’s summit. Hollande largely echoed those views, saying that ‘the door is open to discussions’ and that ‘it’s up to the government of Tsipras to make serious credible proposals’.

In other non-Greek related news, we have the FOMC meeting minutes look forward to as well as the kick-off of US earnings season with Alcoa tomorrow. Chinese equities are experiencing large swings as the central bank tries to stem the volatility which is damaging stability in the region. The Shanghai Comp was down over 1% this morning and Shenzhen was down 5.6%, now nearly 14% off early Monday’s high!

July hasn’t been a kind month for the oil market so far and yesterday was no exception after we saw Brent fall over 6% and WTI almost 8%, tumbling to $56.54/bbl and $52.53/bbl respectively. Along with the heightened tension around Greece and extreme volatility in China, talks between Iran and world powers on a nuclear deal which could see sanctions lifted on the nation also played a part in the commodity’s sharp decline this month.