• Like as the waves make towards the pebbled shore… The news from Greece keeps coming, but there’s no real change. There was talk yesterday that PM Tsipras had agreed to most of the Troika’s – oh, pardon me, the institutions’ – conditions, but then they reminded him that a) “most of” is not the same as “all of,” and b) the offer is no longer on the table anyway. In any event, he insisted that the referendum would go ahead regardless, which only confused matters more.
• To make matters worse (if possible), the Council of Europe, Europe’s top human rights institution, said the referendum would fall short of international standards if held as planned on Sunday, as the time period was too short and “the questions... not very clear.” This is absolutely true: Tsipras stressed in his TV appearance that a “no” vote would “not mean a rupture with Europe.” Contrast that with what French President Hollande said: “It’s about knowing if the Greek people want to stay in the euro zone.” Sigmar Gabriel, Germany’s vice-chancellor, agreed, saying that if the Greeks voted “no,” they were voting “against remaining in the euro.” Clearly the Greek government and the other EU governments don’t agree. I would think that if the poll rejects the compromise, the two sides will probably not be able to reach a new agreement by the time the country’s payment to the ECB comes due on 20 July and so the ECB’s aid to the Greek banking system is likely to be withdrawn. That would make it nearly impossible for the country to stay in the euro.
• Meanwhile, the polls suggest that as people see that being closed off from the EU means no euros coming out of the ATMs, they are starting to lose their enthusiasm for the idea. The polls show the vote has gone from 57% no/30% yes/13% I don’t know before the bank holiday to 47%/37%/17%. Nonetheless the “no”s are still the largest group = plenty of room for volatility next Monday! That is of course assuming the referendum does take place. The opposition parties have filed suit to have it cancelled on the grounds that it’s unconstitutional.
• US data surprising on the upside While the focus ison Greece recently, that doesn’t mean the rest of the world has stopped. The US economic news has been surprising on the upside recently, adding to the dollar’s strength. The ADP report yesterday was better than expected, with the only disappointment being jobs in the energy sector – hardly a surprise. The news has heightened expectations surrounding today’s US nonfarm payrolls (see below) and added 5 bps to the end-2016 Fed funds rate expectations. That helped the dollar gain against all the G10 currencies and almost all the 15 EM currencies that we track (except the INR).
• The commodity currencies were particularly hard hit as oil prices fell sharply on news that US inventories rose unexpectedly in the latest reporting week. The market was expecting a 2.5mn barrel drop in inventories but instead there was a 2.4mn barrel increase! Market participants had expected US oil production to fall in the face of weaker prices, but instead it has remained relatively steady at record high levels. The four-week moving average at the beginning of the year was 9.129mn b/d and in the latest week it was 5% higher at 9.600mn b/d, showing that the sharp fall in the rig count has not caused a concomitant fall in output. That suggests further weakness for the commodity currencies, particularly CAD.
• NZD weakens as dairy prices keep fallingThe weakest G10 currency over the last 24 hours was the NZD, which fell as dairy prices dropped once again at the auction on Tuesday. The continued fall in dairy prices has made the market think that the Reserve Bank of New Zealand (RBNZ) is likely to cut rates at its next meeting on 23 July. That suggests further weakness is in store for NZD.
Meanwhile, CHF was the second weakest currency. Perhaps the Swiss National Bank (SNB)’s newest board member, Andrea Maechler, decided to make a splash on her first day in charge of the SNB department that intervenes in the FX market? History suggests that she can slow the CHF’s appreciation but not stop it
• Today’s highlights: During the European day, Sweden’s central bank holds its monetary policy meeting. At their last meeting, the Bank surprised the market and left its official cash rate unchanged at -0.25% but expanded its QE program by SEK10bn
• In the UK, we get the construction PMI for June. Following the weak manufacturing PMI on Tuesday, another soft reading could weaken GBP.
• The highlight of the day will be the US nonfarm payrolls. Usually it’s released on Friday, but this week it’s being released a day early, as the US markets will be closed Friday due to the US Independence Day holiday on Saturday. The market forecast for June is for an increase in payrolls of 230k, below the 280k in May. Nevertheless, given the strong ADP report on Wednesday, there could be an upside surprise. The “market whisper” among traders in New York is reportedly around 260k. At the same time, the unemployment rate is forecast to decline to 5.4% from 5.5%, while average hourly earnings are expected to rise at the same pace as in May. Another figure above 200k would suggest that the US labor market is gaining momentum and would leave the September rate hike scenario alive. That’s likely to boost the dollar across the board.
• From Canada, we get the RBC manufacturing PMI for June.
• As for the speakers, Riksbank First Deputy Governor Kerstin af Jochnick speaks