• Eurogroup will not enter talks with Greece until after the referendum result…
• …despite Greek concessions, trust is low following Prime Minister Tsipras’ speech
• All eyes on Greece, but positive job market and manufacturing data signal US recovery
Eurogroup looks to have lost confidence in Greek government
The Eurogroup met on Wednesday evening, and decided to hold off talks with the Greek government until after the referendum decision on Sunday. This was despite Greece’s efforts to reach a last ditch deal with its creditors. There appears to be a lack of confidence in the Greek government’s intentions. The referendum will go ahead and the outcome will be crucial. A YES vote could revive talks, likely with a new government in place, while a NO vote would further increase the chances of an eventual Greek euro exit.
Tsipras ‘agrees’ to creditor plan…
The Eurogroup decision followed an extraordinary series of events earlier in the day. To start with, Mr Tsipras sent a letter to the European authorities and the IMF, accepting almost all the conditions set out in last week’s creditor proposal that would have extended the now expired programme. Given that the referendum is asking the Greek people whether they are in favour of this exact proposal, it might have been expected that the Prime Minister would call off the referendum, or at the least urge the public to vote YES.
…then tells public to vote against it
Instead, Mr Tsipras made a speech later in the day where he confirmed that the referendum was going ahead and also argued that the public should vote NO in the referendum and hence against the plan. This triggered doubts about how sincere his government was in reaching and implementing any agreement. In addition, given the old plan has expired, the way forward will be to negotiate a new ESM programme, which could require other measures.
ECB maintains ELA, despite missed IMF payment
Not long after the Eurogroup meeting, the ECB decided to keep the ELA limit for the Greek banks unchanged. This was despite the Greek government missing its IMF payment on Tuesday night and being declared ‘in arrears’ to the Fund. The ECB is likely also waiting for the referendum result, knowing that a decision to restrict ELA will make the situation for the Greek economy and people even worse.
US job market remains strong
While all eyes are on the Greek economy, a ‘somewhat’ more important economy for the global outlook is turning convincingly. US ADP employment rose 237K in June, higher than the consensus of 218K. This bodes well for Thursday’s nonfarm payrolls. Looking at the details of the ADP report, professional and business services posted the largest gains (+61K). This is a positive sign since this is a cyclical area. Meanwhile, manufacturing employment picked up only 7K. Weak job gains in the manufacturing sector have been the trend in the past months as a result of strong dollar which has affected exports.
US manufacturers leaving soft patch behind
However, US manufacturing activity now looks to be reviving. The ISM manufacturing index rose to 53.5 in June from 52.8 the previous month. Almost in line with consensus. The recent pickup in the forward looking components of the survey suggests a modest improvement of output and employment going forward. Finally, another report released Wednesday showed that US construction beat expectations with non-residential spending surging. This is good news since this adds to the positive picture that after a weak first quarter the recovery in the US is broad-based.