Greek prime minister Alexi Tsipras, already under attack from both the left and the right in Parliament, flew back to Brussels this morning to meet with IMF, EU, and ECB negotiators.
Yesterday in the Markets
Stocks in the U.S. ended marginally higher on very light volume Tuesday, as enthusiasm was muted over news that the IMF had rejected the last Greek bailout plan. The Nasdaq Composite inched up 6 points to another high. The dollar gained over 1% against a basket of currencies, increasing worries on Wall St. that overseas profits would be damaged, further capping gains in stocks.
Bonds were lower in the U.S., with the yield on the 10-year T-note rising to 2.43%, a 1-1/2 week high. The German 10-year bund was stable. Crude oil saw a great day, with WTI gaining 1% to close at $61.01, and Brent crude rising 1.8% to $64.45 on expectations that a resolution to the Greek bailout crisis would increase economic activity in the EU.
Gold lost $7.90 to close at $1,178 an ounce, as futures traders see a resolution to Greece in the near future, and prices begin to move toward the seasonal summer doldrums. Silver lost 2% to close at $15.84 an ounce.
Factors Affecting Gold Today
The IMF rejected Greece’s latest proposal, saying that a reliance on higher taxes was the wrong way for Athens to go about balancing the budget. On the one hand, higher taxes would damage an economy that has contracted 25% in the last four years, and on the other, the historical record of inefficient tax collection in Greece meant the money would never materialize. The IMF is demanding structural reforms to combat government bloat and inefficiency. Representatives in the German Bundestag have said that there will not be a vote on the Greek bailout until after the Greek Parliament passes required reform laws.
The Troika sent a counter-proposal to Athens after rejecting the latest plan by the leftist government, only to have it rejected out of hand as being nothing new from a previously rejected plan. The domestic heat is growing for Tsipras, as the Maoists and Communists on the left, and the rightwing nationalist party in his coalition both attack him for selling out the Greek people and breaking the election promises that brought him to power. The Financial Times has a very good article explaining where the two sides stand on different parts of the bailout.
Tsipras flew to Brussels to meet personally with the Troika (the ECB, EU, and IMF) this morning, as the end of the current (frozen) bailout is next Tuesday. This is also the day that Greece owes a €1.5 billion payment to the IMF. A default on this payment may finally exhaust the patience of the ECB, which has been pumping nearly €1 billion a day into the Greek banking sector in emergency funds to prevent a collapse. This emergency assistance from the ECB money press now totals over 66% of Greek GDP.
All this last minute stumbling in bailout negotiations have taken a toll on German business confidence. The Ifo survey dropped to 104.7 today, from 108.5 in May.
Oil has given up a good portion of yesterday’s gains on the snag in Greek negotiations, Gold is down 0.5% in early trading, while the other metals are near unchanged. Rumors are circulating that a sudden dump of $500 million in gold futures caused a momentary flash crash this morning, flushing out sell stops before rising almost immediately. (This is why we prefer physical gold over “paper gold”.)
Yet more Greek drama on tap for tomorrow, as the U.S. releases numbers on first-time jobless claims and consumer spending. These reports could move the market, as they shape expectations on whether the Fed raises rates in September.