Greeks vote with their heads over their hearts

Yesterday's decision to ratify the bailout agreement came out of pure necessity, and for once saw Syriza face up to the truth that it cannot retain both solvency and eurozone membership without austerity.

A man waving a Greek flag
Source: Bloomberg

While Greeks riot in the streets, this deal will provide them at least a reprieve that will allow their banks to function and the economy to return to some sense of normality.

The IMF’s decision to finally stray from the Troika in calling out the issues surrounding debt sustainability were warranted, and there will be no long-term way out of this debt spiral without some form of debt write-down. However, for markets at least, yesterday's vote represented the biggest hurdle to a deal, and thus I expect to see bullish sentiment pervade the markets as we move into next week. The bullish five-day run we have seen in the DAX proves that a ‘risk on’ mentality is back in play.

The ECB's rate decision is somewhat of a non-starter today, with everyone in agreement that there will be no change. However, it will be the commentary surrounding Greece that will be important, as without the ELA programme Greece remains within catatonic paralysis. Ultimately Mario Draghi needs to know that Greece will remain within the eurozone to resume ELA hikes, but to wait for a full bailout signoff could be absolutely detrimental to the Greek economy. Thus any hint as to what might spur the ECB to resume ELA rises could be the most interesting thing to occur at today's meeting.

Janet Yellen’s second day of testimony is expected to provide little in terms of new clues as to the outlook for rate rises this year. Ms Yellen yet again reiterated that we will see a hike this year, but also emphasised the importance of the size and speed of a hike rather than its timing. Ultimately, monetary tightening will always seem like walking on eggshells, and I expect it to be slow-paced and moderate in size regardless of whether it starts in September or later this year.

Dixons Carphone must be one of the only firms that is outperforming in a Greek economy that is at a standstill. Arguably one of the most successful mergers of recent memory, this tie-up is expected to bring further efficiency gains as time goes on, and today’s jump in profits is unlikely to be the last.

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