Here we go again – third Greek bailout offered

The ECB, EU and IMF appear to have offered Greece another bailout programme worth EUR 15.5bn over 5 months, according to EU officials and the German media. This deal does not come for free; it will require another aid programme, i.e., austerity cuts, and still needs to be accepted by Greece.

This cash-for-reforms deal was apparently what was pushed on Greek PM Tsipras during his tete-a-tete with Angela Merkel and Francois Hollande earlier today. Apparently Merkel gave a deadline to reach a deal by Monday morning. We have yet to hear whether she has twisted Tsipras’s rubber arm, but she already seems to have affected an about-turn in the IMF’s stance, which suggests that Merkel is even more powerful than most people thought.

A word of caution, Greece may decline this offer, but if it wants to stay in the Eurozone then it probably should accept. We may not get a definitive answer until tomorrow’s Eurogroup summit, but it looks like there is a chance that Greece’s Lehman’s moment could be avoided.

Markets: Am I bover’ed???

The market reaction is still muted, EURUSD continues to trade in a miniscule range between 1.1155 and 1.1220, and it barely reacted to the headlines on the bailout offer. After a weak start to the session, stock markets are managing to recoup some earlier losses, and the Eurostoxx index is actually in positive territory for the first time today. The FTSE 100 has also been able to claw back some recent losses. We expect this prime example of Greek can-kicking to elicit only a small reaction from the markets, which have generally dozed in and out of consciousness during this latest farcical round of Greek debt negotiations. More important to sentiment in stock markets could be what goes on in China. Although the Chinese stock market tends to walk to the beat of its own drum, the recent sharp declines suggests that the bull market is over and a sell-off could be upon us? Could Asia be the first of the major stock markets to fall and will the rest follow? We’ll be watching to see if the Greek news can trigger a return of the bull run for European stocks, if not then it could be worth looking East for inspiration.

Greece doesn’t even appear to be the main driver of the EUR. So far EURUSD looks fairly well supported around 1.1145 – the 50-day sma. We have said before that good political news can be bad news as it may lower volatility and boost the carry trade. A return of the carry trade strategy could be bad news for the single currency as it may increase its attractiveness as a funding currency once again. Below the 50-day sma, 1.1055 – 100-day sma – comes into view on the downside.

One to watch: FTSE 100

This index looked vulnerable early on Friday, but had an impressive reversal after finding support at the 200-day sma at 6,744. This sets up the index for an interesting start to next week. If a Greek deal is passed then we could see a bounce in the stock market early in the week that may eradicate some of this week’s losses. A stabilisation in Chinese shares and a fairly quiet earnings calendar could help a potential rally. 6,820 –Friday’s high, and then 6,875 – the weekly high, are key resistance level to watch out for.