SCOREBOARD: Greek hitch

A fairly quiet session overnight, with Greece still dominating the headlines. Risk was initially pulled in (through our session yesterday) following a move by the Euro Group finance ministers to postpone a decision on whether Greece would get the full €12 billion promised for next month (the fifth tranche of the first aid package). The ministers said that the Greek parliament must pass legislation that cuts expenditure, lifts taxes and approves privatisation measures before they get the cash (so they have two weeks). The Greek government, for its part, said it is hoping to do this prior to June 28, although the first hurdle is a vote of confidence due today. Then we have the IMF suggesting it doesn't want to pay out the €12 billion until the Europeans have agreement on a second aid package. Recall that the stumbling block here is how to encourage private credit holders to rollover their current holdings, voluntarily, without that being viewed as a credit event. German banks, for their part, have said they want incentives to voluntarily roll debt over. Now why this is a new problem is because the IMF had previously suggested they needed only a commitment to the second aid package rather than firm agreement. Another meeting is scheduled for July 3.

European markets were hit by this and the euro weakened. Peripheral bond yields rose and stocks generally closed weaker with the Dax down 0.2 per cent, FTSE down 0.4 per cent and the STXE600 off 0.5 per cent. Wall Street initially followed suit with the S&P 500 hitting a low of -0.3 per cent in early trading. A bid was eventually found though and, in part, this was due to comments from Jean Claude Junker (head of the Euro group) that a solution to Greece would be found. The S&P rose 0.7 per cent at the high, and closed up 0.5 per cent (1,278) – with healthcare, consumer goods and industrials the key outperformers, although most sectors pushed higher. The Dow gained 76 points (12,080), the Nasdaq was up 0.5 per cent (2,629) and the SPI rose 0.8 per cent (4,484).

US Treasuries did little despite trading on comparatively wide ranges on the 5-year (8bps) and 10-year (10bps). At the close, the 2-year yield was at 0.37 per cent, the 5-year yield rose almost 2bps to 1.53 per cent and the 10-year was up almost 3bps to 2.96 per cent. Australian futures, having rallied 8-9 ticks yesterday (high of 36 and 95), then sold off in the US session and are 3 ticks lower on the 3s (95.30) and 2 ticks lower on the 10s (94.91).

As for forex, we typically saw the major currencies weaken against the US dollar through our session but then in the European/US session they reversed somewhat. From yesterday afternoon, the Australian dollar is up 20 pips (1.0570), euro is 79 pips higher (1.4303) as is sterling (1.6202). The yen was little changed at 80.3. Finally, in the commodities space, things were mixed. Gold was up smalls ($1,541), and WTI gained 0.5 per cent ($93.4) although Brent was down 1.32 per cent ($111.75). Copper then sold off 0.7 per cent, while softs were generally stronger on the CRB.

Data wise, German producer prices were flat in May and rose 6.1 per cent year-on-year from 6.4 per cent last month. Then in Japan, the government revised up its growth forecasts and said manufacturers were making good progress in restoring production and supply chains.

To the day ahead, other than the RBA minutes (1130 AEST), there is nothing in our zone. The minutes themselves could be big, given the conflicting signals we're getting on policy. We know the RBA's medium-term view and that was reaffirmed by Stevens last week, so we're not going to learn anything new on that front. The key issue is to what extent the board shares that view. With 30-day futures pricing in a 20 per cent chance of a rate cut by year-end it is probably a good time to think about going short – to think about it, that is. Base case, it is highly unlikely the RBA will cut, although a Greek default could change all that. We can't say obviously that the rally doesn't have further to run then given Greek issues, but, if it looks like that is going to be resolved, it's an easy few points. The trick is going to be getting in before the rush. Tonight, just watch out for the German ZEW survey and existing US home sales.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.