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Greeks breathing optimism while economic data under focus in Europe

Investors are biting the positive optimism that all the hard labor put on Greek negotiations will have its happy ending and this has pushed the equity markets higher. Some markets have actually made record high. The example of this can be seen in the U.S. markets where investors have pushed the equity markets sky high. The Greek equity market and it financial sector had its best gain yesterday after dropping continuously during the past few days/weeks. The fact is that the Greek market is like a bird which is caught in a cage against its will and the moment he is given a chance to fly, he want to fly sky high.

The question is always being asked if this rally will be sustained, if there is a deal? The answer is if there is no further drag on any of the future deals and we have a firm foundation, and this can give us a rally which will last for a few month and the next worry for the market will not be Greece, but it will be the ECB’s QE which investors will start to speculate that it may end before it days.

Nevertheless, what we have seen yesterday is a shift and a bit of elastic approach from both sides in terms of Greek negotiations. Definitely- a positive attitude not a gambling one! Greece has shown that it may be willing to change its so called red lines, which are pensions and VAT issues and the creditors have confirmed that they are willing to crunch the numbers again. So, Thursday is the day when both parties will meet once again and a possible solution can be achieved. However, there is a question mark on this which is if Mr Tsipras will be able to pass the new measures from his parliament and this sticks out the uncertainty, but given the massive debt repayment is due on 30th, perhaps the parliament may fold under the pressure.

The blood line for Greek banks, the ELAs, are checked by its doctors on a daily basis- the ECB and the process may continue like this unless we have a firm solution between the two parties. Perhaps, this is nothing more than a political move by the EU officials to remind Greece that who is running the show and if they don’t really bend to their wishes what possibly can happen. The process has increased the evaporation of bank deposits as clients do not feel comfortable to leave their life savings in these banks and perhaps are more happy to burry them in their back garden.

The economic docket is fully lit today with French, German manufacturers and PMI data due this morning. The forecast is skewed towards the lower end because the ZEW reading released earlier wasn’t very pleasing. The French PMI data is forecast to come at 52.6 and the manufacturing data is expected to hit 49.6. Similarly, the forecast for the German manufacturing and PMI data is 51.1 and 53 respectively.

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