- Germany’s consumer climate reaches highest level in almost fourteen years
- Press reports suggest that Greece and its creditors might reach a deal soon, but hurdles remain
- Oil prices under renewed downward pressure
Consumer climate in Germany beats expectations
Germany’s GfK consumer climate increased from 10.1 in May to 10.2 in June, whereas a small decline had been expected. The rise in June put the indicator at its highest level since October 2001 and well above its historical average value of 5. The details of the report show that consumers’ propensity to buy increased sharply, jumping by more than 4 points, to 62.6. Moreover, the expectations about the economy improved markedly. The only part of sentiment that deteriorated was the income expectations, which fell slightly but remained close to historical highs. The rise in confidence supports our view that consumption will continue to grow robustly in the coming quarters.
Press reports suggest a deal for Greece is in final stages
According to leaks to the press by Greek officials, Greece and its creditors have apparently entered the final stages of reaching a deal. But at the same time, a Greek government official mentioned that disagreements between the IMF and Europe were ‘a problem’, while a European official denied that a deal was close. Still, Greek officials have mentioned that an agreement would probably contain a medium-term agreement on debt relief, a lower target for the primary budget surplus, no extra austerity measures, a sales tax overhaul, some changes to the pension system and a package of measures to stimulate growth. This certainly sounds like an attractive deal for Greece, but we have to wait and see how much of this will turn out to be too good to be true.
No extra ELA support for Greek banks needed
The ECB did not raise Emergency Lending Assistance (ELA) for Greek banks yesterday. It was the first time since February that the available amount was left unchanged. However, according to bank officials no request for extra support was made by the Greek banks this week because they still had an unused liquidity buffer. In earlier statements to the press officials close to the matter have said that under the current collateral rules another EUR 20bn ELA would be available for Greek banks, implying that they have enough liquidity to get them through the next couple of months, unless there is a sudden increase in deposit outflows.
Oil prices under downward pressure again
Oil prices have declined in the past few days. The renewed downward pressure on prices can be explained by several factors. To begin with, from a fundamental perspective, not much has changed since oil prices traded at their January lows. There was, and still is, an oversupply of oil in the market. Secondly, the recent recovery of the dollar – based on Fed rate expectations and worries surrounding Greece – proved negative for commodities. Third, Hedge Funds cut a significant part of their existing oil long positions, and some even went short, based on profit taking and the awareness that oversupply still dominates the oil market. The fourth, and final, argument has to do with US crude production. The combination of increased efficiency in (US) oil production and the rise in prices since the January lows, have triggered US crude producers to either continue or restart production. The drop in US rig count seems to have stabilized, and US production is still around record levels. Therefore, the market has started to realize that oversupply is here to stay for some time. With the OPEC meeting coming up next Friday (market expectations are for no change in OPEC policy), hopes that the global oil markets would find a new balance have started to fade. Therefore, some more pressure on oil prices could be seen in the coming weeks.