- Eurogroup more positive on progress in negotiations with Greece …
- … but gaps still need to be bridged, while Greece is running out of money
- US small business more optimistic, suggesting that economic activity will firm after a weak first quarter
Progress in negotiations with Greece …
The Eurogroup issued a statement about Greece yesterday, which probably was not as positive as the Greek government had hoped, but still struck an optimistic note. According to the statement the Eurogroup “ welcomed the progress that has been achieved so far”, while acknowledging that “the reorganization and streamlining of working procedures has made an acceleration possible, and has contributed to a more substantial discussion”. However, “ more time and effort are needed to bridge the gaps on the remaining open issues” . Eurogroup head Dijsselbloem added that the negotiations were “more efficient, more positive, more constructive”, while “faster progress” was being made. Still, he reiterated that a comprehensive deal is necessary before any disbursements can take place.
… financial resources are drying up
The Eurogroup statement probably was also not positive enough for the ECB to raise the cap on the amount of T-bills that Greece is allowed to issue, for which Athens was hoping. In the meantime, the Greek government is running out of cash quickly. It met its obligations to the IMF yesterday, and paid EUR 750 million that was due, though it had to use funds from its emergency IMF holding account to do this. According to finance minister Varoufakis the liquidity issue had become “terribly urgent”, referring to a time period of “the next couple of weeks”. The official deadline of the current bailout extension is the end of June, but we have serious doubts about whether the country could wait that long for financial aid. Several payments to the IMF are due in June (total around EUR 1.5bn).
Deal still likely
Our base case remains that Greece and the EU will reach an agreement eventually. All parties involved have continuously repeated that the starting point of the negotiations is that Greece will remain a member of the eurozone, and Greece’s prime minister Alexis Tsipras seems committed to reaching a deal. Meanwhile, according to press reports, Mr Dijsselbloem suggested that Europe could consider disbursing the financial support in proportions, as the Greek government passes pieces of economic legislation.
US small business rises
Yesterday’s NFIB small business optimism index, based on a sample of 10,799 small business owners, signaled more positive sentiment. The overall index increased to 96.9 in April from 95.2. Its components were broadly positive. Earnings trends rose, while hiring plans edged up. The net percent of firms planning to raise compensation increased slightly as well. This is positive for wage growth prospects. Other indicators such as plans to increase capital outlays also increased, while they were a bit more cautious when asked about future sales. This survey is consistent with economic activity firming.
US job openings decline in March
Job openings in the US fell slightly in March after reaching a 14-year high the previous month. This data is consistent with March’s nonfarm payrolls report that showed a job market cooling down, mainly as a result of a harsh winter. The decline in jobs openings was 150K, reaching 5 million . This resulted in a job openings rate of 3.4%, down from 3.5% the previous month. The number of positions waiting to be filled decreased mainly in the health care and social assistance. Elsewhere in the report, the total quit rate, a measure of labour market confidence increased one-tenth to 2%. We expect the labour market to improve at a faster pace than in the first quarter, which should keep the Fed on track for a September rate hike.