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Default Looms For IMF

“The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable”. Yannis Varoufakis speaking to the Telegraph yesterday made it quite clear that even if his country votes not to go down the austerity path, their place in the euro should remain. The Greek government are taking legal advice and, if necessary, will be appealing for an injunction to ┬áblock any forced Grexit at the European Court of Justice.

Alex Tsipras is said to be urging his countrymen to vote no on Sunday, despite getting an 11th hour offer from Jean Claude Juncker, who is still trying to get a deal done before IMF repayment deadlines expire tonight.

Stock markets suffered heavily yesterday, with the Spanish and Italian indexes down around 5%, French and Germans nearly 4% and the FTSE100 down 2%. If you looked at the euro though, you’d be forgiven for thinking there was no crisis. The single currency regained every bit of ground that it lost in the Sunday night sell-off and then some. The Swiss were forced to intervene and sell some francs in a bid to stop excessive strengthening. The central bank didn’t leave it until the currency depreciated towards parity and instead chose to take action overnight in a bid for some stability.

Stability within a currency is one thing, but the amount of volatility (now at a 7 year high) means that a large number of financial instruments are seeing price distortions, because there is still so much uncertainty. Half of the problem is that the market still can’t identify exactly what the ‘event’ is in the ‘event risk’ that they’re facing.

Across the Pond, Puerto Rico have said that they cannot pay down their $72bn debt mountain. The Caribbean island is going to seek as many concessions and extensions from its creditors as possible and is apparently calling in the lawyers that were used by Detroit to manage their bankruptcy – though Puerto Rico’s debts are roughly eight times that of Detroit’s – having decided that further taxation isn’t an option and it’s time to bring creditors into the conversation.

China’s market volatility continues, with a 5.5% move higher overnight. The strong performance is probably a delayed reaction to the monetary policy measures that were implemented by the central bank over the weekend, but got overlooked on Monday because of the Greek situation. Despite the rise in markets, there is still talk that China could ban all new IPO’s. This would be quite a move, as Bloomberg reports there are currently 552 companies awaiting approval to publicly list.

Elsewhere in Asia, stocks have seen a gradual move higher, but European stock futures are still set to open lower when Europe comes on-line.

Looking ahead to today; we will cross our fingers that we get some kind of deadline day curve ball from Greece. If they do default on the IMF, they’ll join a fairly illustrious list of countries to have done so, including Sudan, Zimbabwe and Cuba. It’s also month and quarter end, so we should see some fairly large portfolio re-balancing activity. This is likely to overshadow the day’s data which includes a final reading of UK GDP from Q1, European inflation numbers and also some European unemployment data.