Germany preparing for Greek bankruptcy?

Asia is headed for a lacklustre end to the week with a sparsely populated calendar keeping investors at bay.

Germany
Source: Bloomberg

Perhaps regional investors are also a bit unsure about how Greece will play out given most of the tape from overnight trade was mostly negative. There are reports making the rounds suggesting the German government is preparing for a Greek bankruptcy. This is hardly surprising though given it has always been a possibility. As a result, some investors would be unwilling to be overexposed heading into the weekend. The latest reports suggest negotiations between the IMF and Greece have stalled with comments from EU officials suggesting time is running out fast. Comments by EU President Donald Tusk dominated headlines after suggesting a hard-line approach will be taken on Greece. It seems the gap between Greece and Europe is still quite wide and the differences are no closer to being resolved. According to the IMF, Greece does not want to budge on key issues and at some point global markets will have to start pricing in the risk of things going belly up in the near term. Bonds already seem to be pricing in an element of risk with a move higher in treasuries and bunds setting the tone for fixed income. The appreciation in treasuries came despite another set of encouraging US data with retail sales coming in ahead of estimates.

Lacklustre ASX 200

The ASX 200 is mildly weaker today and has been relatively sidelined for most of the session. After a strong performance yesterday, it just seems we’ve run out of legs and investors are just happy to see the market in a holding pattern. Company news has been limited and healthcare names are the few bright spots on the ASX 200. Apart from that the domestic macro themes remain focused on the property market and some fiscal challenges the economy is facing. Yesterday’s jobs numbers went a long way towards lifting confidence around the economic recovery but some feel this hampers the chances of further easing down the track. There is a lot of central bank speak next week with RBA Assistant Governors Kent and Debelle set to hit the wires. We also have the RBA bulletin but this tends to be historical as most of the information is already available to the market.

Weaker open for Europe

Ahead of European trade we are calling the major European bourses weaker. While the next Eurogroup meeting is only on June 18, there could still be plenty of sensitive headlines along the way particularly given how vocal leaders have been about the issue. The chances of getting a deal done by then just seem slim, unless leaders haven’t been completely upfront on the progress (or lack of progress) of negotiations. EU President Tusk went as far as saying the June 18 meeting should be decisive. Despite the negative headlines, EUR/USD wasn’t sold off aggressively and remains in the mid 1.1200 region. This week’s highs of 1.1390 were capped by a downtrend that’s been in place since July last year. There isn’t much on the European calendar today with industrial production being the only worthwhile reading. However, in the US we have PPI, consumer sentiment and inflation expectations. Judging by the recent improvement in data, there will be some optimism ahead of any US data. Next week we have the FOMC meeting where no change is expected but it may give further hints/clarity around rates lift-off.

 

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