Once again it’s all about Greece, with the latest iteration of a “Greek deal is imminent” rumor making the rounds and, just like yesterday, sending futures in the green, just a little over an hour after the increasingly more illiquid E-mini future has slid 0.7%. The EUR, where the bulk of Virtu headline kneejerk reacting algos are to be found, has surged over 100 pips overnight on more hope and optimism.

The catalysts are several, including a Die Welt article repeating what we said last night, that there is now essentially an agreement among the Troika on the Greek proposal, as well as a Bloomberg note out earlier saying “representatives from creditor institutions said to be wrapping up proposal to end impasse on Greek bailout talks, two people familiar with the matter say.” 

To be sure the note is about as vague as it gets, and it is still unclear whether proposal will allow for modifications, one of the people says. Creditors haven’t decided how proposal will be communicated; one possibility would be for French, German leaders to present offer to Greek PM Alexis Tsipras, one of the people says. Of course, the whole thing may well be just more EUR position squaring by “source” for Bloomberg, which like Reuters, also makes substantial profits from FX and market volatility due to its market making business. The punchline: “People asked not to be named as talks are private.“

None of this is new, and the song and dance are well known: Europe will not provide concessions out of concerns this may stoke “anti austerity” movements in Spain and Portugal, bond of whose bonds were seen tumbling earlier today, while Greece will ultimately cave but at the risk of a political crisis at home and new elections, thereby handing the victory over to the Troika. As such, best to observe from a distance.

In other overnight news, the SHCOMP was up another 1.7% overnight, and is almost back to its 8 year high of 4,986, with the CHINEXT index up 4.92% overnight and up 14% from Friday’s lows. Perfectly normal for a global asset bubble.

Elsewhere, Australia’s RBA keeps cash rate target steady at 2.00%; repeats lower AUD needed, policy needs to be accommodative.

In India the RBI cuts repo rate by 25bp to 7.25% as widely anticipated; cash reserve ratio unchanged at 4.0%

BoJ’s Kuroda discussed global economy in meeting with PM Abe, did not discuss FX, reiterates FX levels must reflect fundamentals and stay stable; Separately finmin Aso repeats that currency moves are being watched closely.

A closer look at European markets shows that Bunds have continued to extend on yesterday’s US data-inspired losses with the latest comments surrounding Greece appearing to offer a more promising outlook for negotiations. More specifically, EU’s Moscovici has said that he has observed ‘real progress’ concerning negotiations with Greece with these comments coming in the backdrop of source reports yesterday that EU officials were going to meet to discuss potential agreements and further plans for Greece, aiming to unveil a plan in the coming days. From a technical perspective, the move lower in Bunds has seen the German 10yr yield break above 0.6% to reach its highest level in a week.

Volumes in Bunds are relatively heavy with 450k contracts having gone through already against the 15-day average of 748k with analysts at IFR also noting real money sellers in both USTs and Bunds of notable size adding to existing shorts and/or cutting duration. From a fundamental perspective, other than slightly more upbeat Greek headlines, today also sees a syndication from Spain with books already said to be in excess of EUR 9.5bln. Data has also been better than expected with Eurozone CPI and UK construction PMI weighing on Gilts.

From an equity stand-point despite starting the session off relatively directionless, stocks in Europe have taken a turn lower after being subject to technical selling with the DAX breaking below its 100DMA at 11357.79 and the FTSE 100 taking out its low seen last week. On a sector specific basis, consumer staples are the underperforming sector with British American Tobacco trading lower amid reports of a potential GBP 5.5bln lawsuit with Pernod Ricard in the red after their latest market update.

In FX, the DXY is sliding and the USD is broadly weaker today with gains in the EUR seeing the greenback give back some of yesterday’s gains. The EUR has benefitted from a combination of the aforementioned Greek optimism and higher European yields, while the latest Eurozone CPI data also showed an uptick and beat expectations (0.3% vs. Exp. 0.2%, Prev. 0.0%). GBP has also gained some ground this morning against the USD following better than expected construction PMI data (55.9 vs. Exp. 55.0). Elsewhere, AUD has managed to hold onto its gains in the wake of the RBA rate decision whereby the central bank kept rates on hold as expected and failed to offer any explicit easing bias.

In the commodity complex, both WTI and Brent crude futures have been provided a boost by the weaker USD heading into Friday’s OPEC meeting with the cartel widely expected to stand pat on their current production target given the recent rebound seen in oil prices. In metals markets, spot gold and spot silver trade relatively unchanged while Copper prices have risen in a rebounded from yesterday’s lows.

Looking ahead, today sees the release of US Factory Orders, API Crude Inventories and potential comments from Fed’s Brainard

Bulletin Headline Summary from Bloomberg and RanSquawk

• Bunds have continued to slide in the wake of recent Greek headlines, with Eurozone CPI topping expectations and the German 10yr yield breaking above 0.6%
• Higher European yields have supported EUR and as such has dampened sentiment for European equities
• Treasuries decline, extending losses seen after yesterday’s better than forecast ISM Manufacturing and as IG issuers priced $10.525b including $2.5b 100Y from Petrobras.
• Representatives from Greece’s creditors are meeting to wrap up new proposal aimed at breaking a deadlock for disbursement of new bailout funds, according to people familiar
• Creditors haven’t yet decided whether they will allow  the new proposal to be modified; also being debated is the manner in which it would be presented to Greece
• PM Tsipras said Greece has submitted its own proposal last night; “We are not waiting for them to submit their own plan back to us,” Tsipras told reporters yesterday. “Greece is the one that submits the plan”
• Euro area consumer prices rose 0.3% in May, more than expected and the first increase in six months
• India’s central bank lowered rates for a third time this year and said it’d wait to assess monsoon rains before acting again, an outlook that disappointed investors looking for more cuts to spur weak economic growth
• In a sign of the tumult in the health insurance industry under Obamacare, companies are seeking wildly differing rate increases in premiums for 2016, with some as high as 85%, according to information released by federal government: NYT
• HSBC Holdings Plc will announce a plan next week to cut thousands of jobs, Sky News reported, citing unidentified people close to the matter
• Sovereign 10Y bond yields higher. Asian, European stocks lower, U.S. equity-index futures decline. Crude oil gains, copper and gold fall

DB’s Jim Reid concludes the overnight wrap:

Greece continues to be the other headline grabber at present. Late last night at a meeting in Berlin which included German Chancellor Merkel, the IMF’s Lagarde, ECB President Draghi and French PM Hollande, the leaders agreed to step up work with ‘real intensity’ over the coming days. A statement from Merkel’s camp said that the leaders ‘have been in closest contact in recent days and want to remain so in the coming days, both among themselves and naturally also with the Greek government’. The lack of any other material news however, specifically around the key sticking points holding up progress, may well disappoint markets this morning.

Before this the initial focus yesterday was on Tsipras’ op-ed on the weekend, although this was largely played down as political PR. There were comments once again from the EU’s Oettinger that both sides were striving for a deal by Friday, but we note that Oettinger has little, if any, role in the negotiation process. Germany’s Vice-Chancellor Gabriel meanwhile urged for a deal this week, saying that ‘I believe that all the proposals are now on the table and we can only hope that those holding political responsibility, also those in responsibility in Greece, will use the little time that is left to reach decisions’. So another day passes with no agreement reached and time continuing to tick down. Interestingly, despite the time pressure there was little mention of bundling payments from the Greece side yesterday. For now however, it’ll no doubt be another day of headlines.

Turning now to markets in Asia this morning, it’s a fairly bleak picture in equities with the Nikkei (-0.28%), Shanghai Comp (-0.04%), Hang Seng (-0.74%) and Kospi (-1.13%) falling. In fact, as it currently stands the Nikkei is on track to bring to an end 12 consecutive days of gains, the joint-second longest streak since 1970 (the longest being 15 days in 1988). The rally has been supported by a weakening of the Yen, which at one point traded above ¥125 (versus the Dollar) intraday this morning for the first time since 2002. Data in the region was supportive meanwhile, with April labour cash earnings of +0.9% yoy well ahead of expectations of +0.3%, while real cash earnings (+0.1% yoy) are back in positive territory for the first time since April 2013. Elsewhere, in Australia the AUD is +0.60% after the RBA left rates unchanged at 2.00%.

Back to yesterday, it was actually a tale of two halves somewhat for markets in the US yesterday. 10y Treasuries initially fell nearly 2bps in yield in the early afternoon, hitting an intraday low of 2.104% after disappointing PCE deflator readings for April. The 0.0% mom headline reading was both below expectations of +0.1% and also down from +0.2% last month, in turn helping to drag down the annualized rate to +0.1% yoy from +0.3% previously. There was similar weakness in the core meanwhile with the monthly +0.1% print below expectations of +0.2%, and the annualized rate dragged down one-tenth of a percent to 1.2% yoy. There was similar disappointment in the personal spending reading (0.0% mom vs. +0.2% expected) although personal income data (+0.4% mom vs. +0.3% expected) was slightly ahead of consensus.

Yields quickly bounced off their tights for the day following the release of the ISM manufacturing and prices paid however. The former printed at 52.8, ahead of expectations of 52.0 and a 1.3pt increase on April with the employment component in particular rising 3.4pts on the month. The reading was also the first monthly increase since October last year and gave markets a lift after worries that we might see some weakness filter through following the soft Chicago PMI on Friday. The ISM prices paid meanwhile was also better than market consensus (49.5 vs. 43.0 expected) while the final manufacturing PMI for May was revised up 0.2pts to 54.0. Finally construction spending for April was strong (+2.2% mom vs. +0.8% expected), with significant upward revisions to the February (+0.6%) and March (+1.1%) prints. Our US colleagues noted that, following the upward revisions, the data points towards Q1 real GDP being revised to -0.5% from the -0.7% downward revision on Friday. Yesterday’s data, in the view of the Atlanta Fed, largely canceled each other out, resulting in no change to the current GDPNow forecast model for Q2 of 0.8%.

Yesterday’s data saw the Dollar bid return as the DXY firmed +0.50%, wiping out much of the weakness in the index at the back end of last week. Equity markets also saw a modest rise with the S&P 500 (+0.21%) and Dow (+0.16%) both finishing higher. Oil markets reversed some of Friday’s gains however as Brent in particular ended 1.04% lower at $64.88/bbl.

The Boston Fed’s Rosengren also attracted some attention yesterday, reiterating his dovish stance by saying that he would like to begin raising rates as soon as possible but that ‘the conditions haven’t been right’. In particular, Rosengren highlighted the risks in Greece as well as the slowdown in China as concerns, before going on to say that ‘in my view, such a pace of GDP growth does not meet some of the economic preconditions we look for when we begin a tightening cycle’. Fed VC Fischer was also vocal yesterday, in particular saying that the term ‘liftoff’ is misleading and that it would be more appropriate to describe the expected Fed Funds path trajectory as ‘crawling’ in nature.

Equity markets in Europe yesterday mirrored their US counterparts for the most part. Indeed, the Stoxx 600 (+0.18%), DAX (+0.19%) and CAC (+0.35%) all finished higher, shrugging off weakness in Greek equities (-1.44%). Credit markets were soft however as Crossover in particular ended 6bps wider. European data flow was fairly mixed on the whole. The final May manufacturing PMI for the Euro-area was revised down one-tenth a point to 52.2, albeit up versus April (52.0). Regionally, Germany was revised down 0.3pts to 51.1 while France was revised up 0.1pts to 49.4. The peripherals continue to outperform however. Spain’s reading was revised up 1.3pts to 55.8 (a new high) while Italy was revised up 1.2pts to 54.8. The official reading for the UK was revised up less than expected to 52.0 (vs. 52.5 expected) from the initial 51.9 flash reading. Elsewhere, there were few surprises to take out of the German CPI reading where both the monthly (+0.1% mom) and annualized (+0.7% yoy) readings for May printed in line.

Looking at today’s calendar now, the advanced May reading for Euro area CPI will likely be the highlight this morning while there will also be some attention on labour market data out of Germany and Spain. Money supply data for the UK is also due up. Across the pond this afternoon in the US, we get the ISM NY along with April factory orders, the IBD/TIPP economic optimism reading and finally vehicle sales data for May. The Fed’s Brainard is also due to speak today on monetary policy.

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