Greece became the first developed nation to miss a debt payment to the IMF, leading to technical default following its failure on Tuesday to secure a temporary extension of its bailout program. The Greek government had asked its creditors for a new two-year program of additional funding and debt restructuring but it was rejected by Eurozone finance ministers hours before the IMF deadline expired.
The IMF said that Greece is now in arrears and can only receive more financing once the arrears are cleared. As with regards to Greece’s request for an extension of the repayment, the IMF said that its board will consider it “in due course”. However, despite the worsening stand-off, there are still hopes of some sort of an agreement being reached between Eurozone leaders and Greece before Sunday’s referendum as behind the scenes efforts continue. The Eurogroup will meet again on Wednesday to discuss Greece’s latest proposals. The European Central Bank is also expected to convene and it’s possible the ECB will raise the collateral required for emergency lending for Greek banks.
The euro remained relatively stable despite the failure of a last-minute deal to avert a default. The single currency was down slightly in Asian session to 1.1128 against the dollar. It was also down against the pound at 0.7085 but moved higher against the yen at 136.47.
In Asia, shares were unmoved by the latest events with Greece and were in positive territory. Chinese shares were the exception and the main Shanghai Composite index was down around 2% in late trading as Beijing’s recent efforts to aid the economy subsided.
Tokyo shares were boosted by better-than-expected data from the Bank of Japan’s second quarter tankan surveys. Both the manufacturing and non-manufacturing surveys came in above estimates. Also encouraging was the Tankan all-industry capital expenditure index which rose to 9.3% from -1.2% in the previous quarter.
China’s manufacturing PMI disappointed though, coming in slightly below forecasts at 50.2 in June. The alternative HSBC/Markit manufacturing PMI was revised lower in the final reading to 49.4 from 49.6.
The dollar came off highs in Asian trading but was still up on its open. Yesterday’s strong consumer confidence data and euro concerns helped the dollar make gains. The greenback recovered from its one-month lows against the yen to climb to 122.68. It also held on to its gains against the Canadian dollar, which was weakened after negative GDP data on Tuesday. Sterling dropped below 1.57 in early Asian session and was struggling to regain the level, trading just below it.
Coming up later in the day are the final manufacturing PMI for the Eurozone and the US, as well as the first PMI reading for the UK, which is expected to show a small improvement in manufacturing activity in June. The ISM manufacturing index for the US should also show a higher reading for June. The Bank of England will publish its financial stability report and speeches by the BoE governor Mark Carney and ECB President Mario Draghi could also be of interest to investors.
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