Week Ahead and in Review: It’s still all about Greece

Week in review: The Greek Government surprised everyone by sending new proposals that are almost identical to the ones that were rejected in the referendum. This turnaround should make it harder for hardliner countries to refuse starting negotiations on a third bailout. The major problem is that two weeks after capital controls were introduced and the Greek economy ground to a halt, the baseline case underlining the plan are probably overoptimistic, particularly regarding the financial system stability. Meanwhile the IMF continued to insist this week that Greek debt be restructured further. Though this was not part of the Greek Government plan, some discussion on that front cannot be avoided. The Eurogroup will meet on Saturday to discuss this plan and we now believe will agree to starting negotiations on the new bailout before the Sunday deadline imposed by the ECB for keeping the life-line to Greek banks.

In terms of data, in Portugal, inflation eased to 0.8%yoy in June after 1% in May. Nevertheless, the trend is likely to remain upwards, on the back of a stabilisation in oil prices, a weaker euro and stronger domestic activity. Firms investment projections from the April 2015 Investment Survey, rose to 2.5% for 2015, after -2.2% in the October 2014 Investment Survey,due to a less pessimistic mood about sales expectations, though risk is perceived to have risen, possibly due to election and the Greek crisis. Imports of goods rose faster than exports of goods in nominal terms (6.2%yoy vs 3.5%yoy) which led to a decline in the goods’ balance, back into negative territory.

Week ahead: all data releases are dwarfed by the decision on whether to start negotiations about a new support package for Greece. Nevertheless, there are important data releases in the week ahead:

  • Tuesday 14 July: Eurozone industrial production for May is seen rising from 0.8%yoy in April to 1.9%yoy, a sharp rise partly on the back of a base effect
  • Thursday 16 July: ECB meeting about rates – no change expected, press conference likely to be dominated by the Greek issue
  • Friday 17 July: US CPI  – important for Fed’s decision on the timing of the first hike. Negative surprise could delay it to end 2015.  Markets currently expect September.