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21 Apr 2015
Grexit risk being priced in – MP
FXStreet (Barcelona) - Dean Popplewell, Director of Currency Analysis at MarketPulse, comments that markets believe the ECB is preparing to subtly apply further pressure on Greece banks, while on the other side a Grexit risk is being priced in as uncertainty related to a EU-Greece agreement increases.
Key Quotes
“Interested parties are trying to get Greece to conform to creditors demands. There are currently two avenues of pressures on Greece to force them into fulfilling said demands. There is firstly via the banking system, and second via the liquidity situation of the government. By the latter, the Greek government has more control. The markets saw that yesterday when the Greek government issued various decrees for local government cash balance to be deposited in the Central Bank for government use.”
“It’s the funding of the banking system that Greece has no control over. That’s dependent on the ECB’s role as “lender of last resort” through the use of ELA (Emergency Liquidity Assistance).”
“The market now believes that ECB staff is preparing a proposal to subtly apply further pressure. They could do this by increasing haircuts on Greek bank collateral offered for ELA.”
“The Eurogroup require a Greek reaction, as a member they are required to fulfill all protocols and not just back away from responsibility. Applying subtle pressure hopefully will garner a positive reaction. To date it has not and time is running out as the uncertainty over how Greece and its creditors will come to an agreement has led the market to continue to price in a rising risk of Grexit.”
“The Greek yield curve continues to invert (short yields rise faster than long would suggest default).”
“The question and answer yet to be discussed in detail is if a default and exit does become a reality, will the ECB’s QE limit contagion?”
Key Quotes
“Interested parties are trying to get Greece to conform to creditors demands. There are currently two avenues of pressures on Greece to force them into fulfilling said demands. There is firstly via the banking system, and second via the liquidity situation of the government. By the latter, the Greek government has more control. The markets saw that yesterday when the Greek government issued various decrees for local government cash balance to be deposited in the Central Bank for government use.”
“It’s the funding of the banking system that Greece has no control over. That’s dependent on the ECB’s role as “lender of last resort” through the use of ELA (Emergency Liquidity Assistance).”
“The market now believes that ECB staff is preparing a proposal to subtly apply further pressure. They could do this by increasing haircuts on Greek bank collateral offered for ELA.”
“The Eurogroup require a Greek reaction, as a member they are required to fulfill all protocols and not just back away from responsibility. Applying subtle pressure hopefully will garner a positive reaction. To date it has not and time is running out as the uncertainty over how Greece and its creditors will come to an agreement has led the market to continue to price in a rising risk of Grexit.”
“The Greek yield curve continues to invert (short yields rise faster than long would suggest default).”
“The question and answer yet to be discussed in detail is if a default and exit does become a reality, will the ECB’s QE limit contagion?”