Julius Baer: sobre Grecia, el euro, Reino Unido, bonos de EE.UU. y materias primas agrícolas

Redacción - Miercoles, 01 de Julio

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FIXED INCOME: Greece misses IMF payment and asks for a two-year bailout support from ESM

As widely expected, Greece (Sell/Speculative) did not pay the EUR1.6bn bundled payment to the International Monetary Fund (IMF) last night but asked for an extension of the deadline which the IMF said it will consider. Greece is not in default but ‘in arrears’, limiting it from using the IMF’s re-sources until the arrears are cleared, a process which could take weeks. In a surprise move, however, yesterday before the official expiry of its second bailout programme, Greece asked the European Stability Mechanism (ESM) for a EUR29bn loan to cover its domestic and external debt obligations for the next two years, a restructuring of its out-standing debt and an extension of the current programme until this loan is in place.

 

The extension was not granted but despite the document lacking details, the Eurogroup held an extraordinary meeting last night and will meet again today to consider the proposal. We believe it is unlikely they will agree to anything before Sunday’s referendum. Yesterday Greek officials hinted that Greece might call off the referendum or advocate a ‘yes’ vote if the loan is granted. The European Central Bank is meeting again later today to con-sider the funding available to Greek banks, after the imposition of capital controls as of Monday.

It is unlikely that the IMF will grant an extension to Greece’s missed deadline. While the other official creditors have the right to ask for an acceleration of their obligations, it might not be in their interest to do so. As capital controls are aggravating the situation for the Greek population, the government is under domestic pressure to find a solution. However, the terms of a new bailout programme are likely to be harsher than those on the table last week.

Eirini Tsekeridou, Fixed Income Analyst, Julius Baer

ECONOMICS: Euro suffers only marginally form Greek drama

 

The negotiations between Greece and its creditors are becoming really ugly now that the IMF payment has been missed and as earlier Prime Minister Alexis Tsipras has rejected a last generous money-for-reform proposal during ongoing negotiations. The natural consequence in the currency space is some downwards pressure on the euro due to negative sentiment and uncertainty. However, other factors might limit the euro’s downside. The most important factor appears to be that the euro is a low-yielding currency and strong speculative short positioning suggests that it has been used intensively to finance high-yielding investments (carry trades).

 

The uncertainty around Greece increases volatility and therefore risk aversion which usually leads to an unwinding of carry trades. As a consequence the euro should strengthen during episodes of rising risk version. For the coming month we expect that the negative euro sentiment − due to the difficult dialogue between Greece and its creditors − will marginally dominate the support from the unwinding of short positions. We therefore revise our three-month forecast down to EUR/USD 1.10.

 

Negative Euro sentiment is expected to dominate short covering in an environment of heightened risk aversion.

 

David Kohl, Chief Currency Strategist and Head Economist Germany, Julius Baer

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ECONOMICS: UK Q1 momentum was stronger than expected

 

The final reading of the UK’s national accounts data, presented yesterday, showed that GDP growth was revised up by a tenth of a percentage point to 0.4% quarter-on-quarter, hence stronger than previously noted. Also, backward-looking growth for 2014 was revised up to an average of 3.0% year-on-year, from 2.8%. Last quarter’s upward revision came mainly from net trade, where the drag on GDP has been revised from -0.9% up to -0.6%.

 

Overall, now on a higher growth trajectory and with leading indicators continuing to look robust, the data supports our confidence that the UK will gain momentum again in the following quar-ters of this year. Indeed, some factors of growth look conflicting, such as the strong contri-bution from private consumption, when compared to weak income growth, with the former boosted by a lower savings rate. Nevertheless, we believe the UK is on track to reach our growth forecast of 2.2% year-on-year in 2015 and 2.4% next year.

Yesterday’s GDP revisions confirm the picture of a robust UK, with improvements to come later this year. Given a recovery in inflation towards the winter months, all seems set for the Bank of England to initiate rate normalisation in Q1 2016.

 

David A. Meier, Economist, Julius Baer

 

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FIXED INCOME: US government bonds - Greece unlikely to derail Fed on its path to normalisation

The blame game between Athens and Brussels is unlikely to keep the US Federal Reserve (Fed) from raising interest rates later this year. Much to our surprise, yields in the US market have declined following the announcement of the referendum by the Greek government on Sunday. The yield of the 10-year Treasury note opened on Monday at 2.3%, down from 2.45% on Friday. Readers should recall that Fed Chair Janet Yellen stated at the press con-ference last month that the direct impact of a Greek default on the US economy is negligible. The indirect impact via a bout of risk aversion on the global financial market would be of a concern.

 

So far, however, the market reaction to the Greek news has been rather small, despite all the media coverage. Most equity markets are down a couple of percentage points this week, but they are still positive in year-to-date terms. The US credit market suffered one of the biggest setbacks in history in Q2 2015, but this is only a welcomed reaction in the eyes of the Fed. In their view, the valuation of the equity market is stretched and credit spreads for riskier bonds are too low. To give a warning shot to the market, St. Louis Fed President Bullard stated yesterday that a rate hike in September “is very much in play” and even a move in July is not off the table. Fed Vice President Fischer agreed that wage growth is accelerating.

We agree that the Greek payment problem, as disappointing as it must be for the Greek population, is very much contained to Greece. Indeed, we identify opportunities in European peripheral debt again and also see the US central bank starting a rate-hike cycle later this year. USD high-grade bonds are still our preferred segment in a period of rate normalisation.

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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COMMODITIES: Agricultural commodities rally as American farmers plant less

Agricultural commodity markets are reviving following months of consolidation. Corn, soy-bean and wheat prices surged up to almost 8% after official data revealed that American farmers planted fewer acres and have less grain on storage than earlier expected. Moreover, the northern hemisphere growing season is in full swing but not without hiccups. Recent excessive rains across the US Midwest and some dryness in Europe add to supply concerns.

 

That said, we believe yesterday’s price surge looks somewhat excessive and likely was amplified by bearish market participants covering their short positions. Despite less acreage and less storage, global agricultural markets remain well supplied. It would require a significant weather disruption and resulting harvest miss to sustainably lift prices, which is not on the cards for the time being even with El Niño weather conditions prevailing. We continue to see a protracted bottoming of markets which is well mirrored in the ongoing consolidation and merger activity within the agribusiness industry.

Agricultural commodity prices surged yesterday after less US plantings and storage fuelled supply concerns. We maintain our neutral view as supply remains ample and continue to see a protracted bottoming of markets.

Norbert Ruecker, Head Commodities Research, Julius Baer

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