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To Grexit Or Not To Grexit

To Grexit Or Not To Grexit

Last week was rather an uncommon FX trading week, starting with the Greece declining to pay the EUR 1.5 billion IMF payment, then announcing the Greferendum and the rest of the EU leaders keeping it quiet.

Manufacturing PMI (GBP) If we take a look at the UK manufacturing sector, we can see that it followed the expected trend, remaining in its growth path. The expansion in production and the new orders rate remained lower that the ones from the first quarter of the year. In retrospective, the second quarter of the year had the weakest rates regarding these indicators since the first quarter of 2013. The seasonally adjusted CIPS Purchasing Managers’ Index dropped to its 26th month low at 51.4 in last month, decreasing from 51.9 in May. Despite these downfalls, the figures are above the 50.0 mark in the last 27 months.

US Non-Farm Payrolls (USD) The 223.000 jobs created during June in the USA pushed the spot market up, with no intentions of changing the trend yet. This figure is, however, missing the prospective data of 230.000, and is lower than May’s 254.000 (revised from 280.000). Unemployment also relapsed to 5.3%, the forecast being of 5.5%, the initial perspectives of June being of 281.000 two weeks ago.

Regarding the Average Hourly Earnings, there are no changes. The hourly wage growth rate dropped to 2% YoY with the flat monthly outcome.

The set of data released in June is really volatile, crippling the thoughts of a Fed take-off. General opinion favors a setback of the payroll data in comparison to other labor indicators for the next few months.

The Week Ahead:

· Greek Bailout Vote: Last night, Greek voters rejected the austerity measures proposed by the creditors in one of the most questionable referendums in European history. It’s still unclear if the proposal is still on the table expecting changes. What was of major impact was the vote over the current government. Although the majority of EU leaders expected to see a “YES” result, the majority of Greek voters said “NO.” The “NO” result will have a more complicated outcome, and resulted in a 1% fall for the euro by the market opening. The referendum is only one highlight in the Greek crisis; many other decisions are being taken this week as Greek creditors are inclining towards debt restructuring. The most important one of these events is today’s meeting between the German Chancellor Angela Merkel and the French President Francois Hollande, where the two will be discussing the next steps for Greece.

I should also mention that in a twitter post, Greek PM Tsipras commented that he already had a call with the French President on Sunday, without giving any further hints.

· US ISM Non-Manufacturing PMI: Monday, 15:00. The results showed a fall of the service sector activity in May, making the non-manufacturing index fall from 57.8 in April to a value of 55.7, which was beyond expected. Another index that fell 2.1 points from 57.8 to 55.7 in April is the non-manufacturing purchasing manager. All in all, analysts are sure of economic growth for the next period.

· Australia: rate decision: Tuesday, 5:30. In June, the Reserve Bank of Australia has maintained the cash rate at 2.0%, this after a 0.25% decrease in May and a same decrease in February. The general opinion is that a same decrease will happen in August, combined with a economical degradation due to subdued retail spending and poor non-retail investments. On the whole, if we observe the Australian economy, it has been growing at a slower pace than the forecasts. RBA will expect more data before taking another measure.

· US FOMC Meeting Minutes: Wednesday, 19:00. In these minutes of the meeting, we will find that Fed has published a lower dot plot. In hindsight of the dovish decision and composition of the voting members, it will be interesting to expect a higher rate in June.

· Australian employment data: Thursday, 2:30. As we said above, Australia’s job market has been improving in June with a bigger growth than expected (42.000 jobs), the rate of unemployment being pushed down to 6% from the revised 6.1% of May. The main reason for this spike is the seasonally part-time employment increasing with 29.800, whilst the full-time 15.900. However, the figures of the full time employment still exceed expectations by only 12.000. Taking into consideration all the factors, the participation rate remains at 64.7%. Statistics show us that unemployment will rise in the following months due to the economic decline.

· UK Rate decision: Thursday, 12:00. In the last period, BoE managed to keep the rate at the 0.50% low and the bond-buying stimulus program at £375 billion. However, the Bank communicated that in the middle of next year, these figures will change, after 6 whole years of ultra-low rates. These declarations are put into question by the general opinion, which believes that the rate hikes will be set much sooner, at the beginning of 2016, because of the very confident growth pace of the consumer and housing index.

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