Greek negotiations continue, 'significant differences' yet to be solved

Market movers today

• In the euro area the final manufacturing PMIs are due for release today and focus will be on the first estimates for Spain and Italy. The Italian manufacturing PMI has increased considerably the past three months, while the Spanish one has remained broadly stable at a high level. We expect a small increase in the Spanish figure and look for the Italian one to remain around the new higher level.

• The euro Sentix Investor Confidence indicator will give a first impression of sentiment in May. We expect a small decline reflecting last week’s corrections in stocks, bonds and the USD.

• In the US San Francisco Fed President Williams will speak. He is considered neutral but last week he made some comments with a hawkish twist as he said a June rate hike is on the table. We continue to expect the first Fed funds rate hike in September, whereas the market currently prices a lift-off in December.

• During the rest of the week focus will be on the US labour market report for April, which will be interesting as indicators have pointed in different directions. The UK general election to be held on Thursday will also get attention as polls have been relatively stable suggesting the election is unusually open.

• In Norway there are a number of data releases ahead of the Norges Bank meeting on Thursday, where we expect Norges Bank to keep policy rates unchanged.

Selected market news

In Greece four days of intensive negotiations have not solved ‘significant differences’ on issues from fiscal assumptions to labour and pension reforms. Nevertheless, people familiar with the negotiations reported that the atmosphere had improved and progress has been made after Greek Prime Minister Alexis Tsipras assigned a new negotiating team and pushed aside Finance Minister Yanis Varoufakis. According to Eurogroup President Dijsselbloem it is too early to say whether there has been a turning point in the talks, but he acknowledged that ‘they are working hard now’.

According to Greek media, the Greek government is now aiming for a 2015-16 deal instead of the previous strategy of a temporary deal in May followed by a new, full one in June. We see the latest development as positive, but stick to our view, that we should not get a final solution before the summer crunch time.

In China, the final HSBC manufacturing PMI weakened further to 48.9 in April from a first estimate of 49.2 and is at the lowest level in a year. The weakness is mainly driven by weaker domestic demand as new orders decline, while export orders have improved. Looking ahead it is too early to call the bottom for the manufacturing PMIs, but the monetary easing should start to give some support during the summer.