ADP Report

July 1st, 2015 8:48 am

Via Cheng Chen at TDSecurities:

The June ADP data came out stronger than expected, showing job gains of 237K (consensus 218K) with the May print revised slightly higher to 203K. The breadth of job gains was impressive across small (120K), medium (86K) and large (32K) companies, suggesting that gains were broad-based. The data also shows decent job gains across individual categories, with professional & business employment rising at a very brisk 61K pace (the strongest gain this year). Service sector employment continues to be the engine of growth, contributing 225K to the total gain this month. Gains in the goods producing sector were slightly disappointing, however, with the sector adding only a further 12K jobs.
The overall tone of this report was quite positive and it suggests that the US labor market should continue firing on all cylinders, and on an accounting basis points to payroll growth in the 225K-250K range. However, given the tendency of this report to miss the official employment indicator by wide margins, we caution that the strong ADP gain this month may simply be catchup from ADP’s considerable underperformance over the last two months. ADP has underestimated payrolls by an average of 50K over the past two months (see chart attached), though we continue to look for a modestly above-consensus 233K payroll gain tomorrow even as the ADP report hints at some upside risks.

Treasury market Update

July 1st, 2015 8:46 am

The Treasury market has continued its decline which had begun overnight on the softening of the Greek negotiating position. As the market has declined in price the curve has steepened. When I first marked levels two hours ago 5s 10s was 70.5 and that has moved to 72.1. Similarly 5s 30s has steepened to 149.4 from 147.8 earlier. The 5s 7s 10s spread is currently at 17.3 basis points. That spread was 16.7 basis points earlier. According to my copious notes in traded at that level on June 5,too. I think that level is exceedingly cheap and one would have to travel back quite some time to find that spread that cheap. When it traded that level on June 5 5s 10s 30s was -3.2 (currently -5.2).

One dealer noted that, in addition to the stronger than expected ADP data and the risk on trade, client buying was not as great as expected at month end and he thought some of this trade is dealers regurgitating unwanted underwater longs in the long end.

Greece Falls Short

July 1st, 2015 6:50 am

This WSJ story (hot off the press ) says that the ballyhooed Greek proposals contained in a letter to the creditors fall short of creditor demands.

Via the WSJ:

Greece sent a new proposal for budget cuts and policy overhauls as part of a request for a new bailout, but it falls short of the demands of the country’s creditors, European officials said Wednesday.

In the new letter sent to the country’s lenders late Tuesday night, Greek Prime Minister Alexis Tsipras proposes changes on several key parts of measures at the center of a five-month standoff between the two sides over funding Greece desperately needs.

Those include a later start of pension overhauls and exceptions on sales-taxes for certain Greek islands, measures that lenders already rejected when talks broke down last week.

“If Friday’s proposals (from creditors) are the baseline, these measures would significantly increase (the) fiscal gap,” said one official. “And lots of clarifications would be needed on other aspects,” the official added.

A second official said that the proposals from Mr. Tsipras are a weakening of the measures that have been discussed and would not be well received by the three institutions that oversee eurozone bailouts—the European Commission, the European Central Bank and the International Monetary Fund. A third official echoed that assessment.

A senior Greek government official said that the Greek government was not planning to send additional proposals with more concessions on Wednesday.

European stocks still surged on renewed optimism. The pan-European Stoxx Europe 600 rose 1.6% after it emerged that Greek Prime Minister Alexis Tsipras had sent creditors a new proposal for budget cuts and policy overhauls.

The letter is the latest in a flurry of drama over the bailout. In the last week, Greece has called a referendum on demands made by creditors and closed its banks to stop a flow of money out of the country. On Tuesday, it became the first developed country to default on the IMF, as the rescue program that has sustained it for five years expired.

Germany, which has maintained a hard line, views the latest offer as insufficient to resume bailout talks, according to people familiar with the thinking in Berlin. This week’s turmoil has changed the circumstances too much, and bailout talks can no longer simply be resumed, they say.

Mr. Tsipras has asked for a new rescue program—the country’s third in five years—to help pay for some €29.15 billion ($32.52 billion) in debt coming due between 2015 and 2017.

The Greek premier’s proposals were contained in a two-page letter dated June 30 to European Commission President Jean-Claude Juncker, the head of the European Central Bank, Mario Draghi, and the managing director of the International Monetary Fund, Christine Lagarde.

Mr. Tsipras said Athens will accept reforms in sales tax, with the exception of a special 30% discount for Greek islands, many of which are in remote and difficult-to-supply regions.

Mr. Tsipras also requested changes to move the retirement age to 67 by 2022 to begin in October, rather than immediately, and a supplementary payment to the poorest pensioners, EKAS, be phased out more slowly than creditors request.

Eurozone finance ministers were to discuss the new Greek requests in a conference call in the late afternoon.

Late Tuesday, Greek officials were also raising doubts over their plans for a referendum, in which the government had asked its citizens to vote against pension cuts and sales-tax increases.

Most Greeks plan to reject the creditors bailout terms though support for Greece to stick to austerity and secure its place in the eurozone is growing, a poll showed Wednesday.

In the first poll figures published since Mr. Tsipras shocked Europe by calling a vote on Sunday, 46% said they back the “no” vote.

But support for the “no” vote had been much higher, at 57%, before Greek authorities imposed capital controls and closed banks.

The data, put together by pollster ProRata and published in the daily newspaper Efimerida ton Syntakton, showed that 37% of respondents backed “yes” vote. Support for the yes vote was just 30% before the decision to shut banks this week.


July 1st, 2015 6:42 am

Via marc Chandler at Brown Brothers Harriman:

Deadlines Come and Go, Markets Endure

– Greece has formally fallen into arrears with the IMF and the second aid package has expired, but recent reports suggest Greece is willing to accept the conditions
– This seeming reversal by Tsipras will likely annoy the official creditors as it underscores that there was no reason to end negotiations
– Overnight data highlights include stronger Japanese Tankan survey, Chinese PMIs showing the relative strength of the service industry, and as expected Eurozone PMIs
– Korea trade balance rose to another record high in June, though both imports and exports fell

Price action:  The dollar is mostly stronger on the day.  After trending lower since yesterday, the euro bounced off the $1.1100 level following positive Greece headlines.  Sterling, however, broke below this week’s range to around $1.5650.  The dollar is testing the ¥123 level against the yen.  EM currencies are mixed in narrow moves.  Despite the 5.2% fall in the Shanghai Composite, Asian equities were mostly stronger overnight with the Nikkei up 0.5%.  Euro Stoxx 600 is up 1.5% near midday, while S&P futures are pointing to a higher open.  Sovereign debt yields are mixed, rising in the US and core EU countries, while falling in Portugal, Spain, and Italy.  Greek 10-year yields are down 5 bp.


  • Greece has formally fallen into arrears with the IMF, and the second aid package has expired.  The markets have taken it in stride.  The euro was briefly pushed below $1.1100 but snapped back quickly amid reports that Greece is willing to accept most of creditors’ conditions.  The euro bounced almost three-quarters of a cent on the headlines, but it likely reflects more short-term market positioning than a serious new development.  
  • As we have noted, the European creditors and the Greek government were fairly close to an agreement prior.  For all the talk of Syriza being radical, it was willing to accept around 90% of the creditors demands.  This basis of one of the criticisms of the referendum:  the government wants to Greek people to reject the creditors’ proposal even though it supports the lion’s share of it.  
  • This seeming reversal by Tsipras will likely annoy the official creditors as it underscores that there was no reason to end negotiations.  It will not bolster the sorely lacking trust.  Indeed, it shows that despite the polls suggesting that the “no” vote is ahead, the Syriza government is flailing.  As of late yesterday, Merkel rejected new negotiations until after the referendum.  Due to the unpredictable nature of Syriza, we suggest that is still a modest chance that the referendum is called off at the last minute.  
  • The Greek drama is still the main focus though there has been the usual beginning of the month survey data.  The highlights include a stronger than expected Japanese Tankan survey, especially for large companies, as capex plans were hiked to 9.3% from a -1.2% fall in the March survey.  Small businesses are still struggling, but the case of an expansion in the BOJ’s QE is not to be found here.  
  • China’s PMI readings possibly show the transition from manufacturing to services.  The official service PMI rose to 53.8 from 53.2.  This is a four-month high.  The official manufacturing PMI was unchanged at 50.2.  The consensus expected 50.4.  New orders and new export orders weakened further, suggesting no imminent recovery in the manufacturing sector.  The HSBC manufacturing PMI was revised to 49.4 from 49.6 in the flash.  After a rally yesterday, Chinese stocks turned back down today with the Shanghai Composite down 5.2%, reversing early gains to settle on its lows.  
  • The eurozone manufacturing PMI was in line with the flash 52.5 reading.  Germany was unchanged from the flash 52.5, and France improved to 50.7 from the 50.5 flash.  Note that this is the first reading above 50 for France since April 2014.  Both Spain and Italy’s manufacturing PMI were softer than expected and below the May readings.  Spain’s manufacturing PMI stood at 54.5, down from 55.8 in May.  Italy’s stood at 54.1, down from 54.8.  The three factors that helped fuel the cyclical recovery (the declines in oil prices, the euro and interest rates) have all been partly reversed.  
  • The non-EMU European manufacturing PMIs were disappointing.  The UK’s fell to 51.4 from 51.9.  This is a two-year low.  The average in Q1 was 53.7.  The average in Q2 is 51.7.  The manufacturing sector is small, and the service sector update is important, but the market may have been jumping the gun with talk of a November hike.  
  • Separately, Norway and Sweden also reported disappointing PMIs.  Norway’s slumped to 44.0 from 46.5.  This is a six-year low.  Although the central bank may not put as much emphasis on this report as it does its own regional survey, another rate cut seems likely.  Sweden’s Riksbank meets tomorrow and it will not like the fall in the manufacturing PMI to 52.8 from 54.8.  It is the low for the year and orders fell to eight-month lows.  There is more talk of a small rate cut and a possible extension in the bond purchase program.  
  • Korea’s trade balance rose to another record high in June, though both imports and exports fell.  Exports have been contracting for six months, falling -1.8%, while imports contracted by -13.6%.  June CPI was flat m/m, slightly lower than expected, equivalent to a 0.7% y/y increase.  Korea reports May current account data Thursday.  The external accounts continue to improve, though driven mostly by lower imports, while the sluggish economy is keeping price pressures down.  BOK is likely to maintain a dovish bias in H2.
  • The US reports a slew of data today.  The ADP employment estimate is for 218k private sector job growth.  The ADP has underestimated the BLS figure in five of the past seven months.  The market also puts emphasis on the ISM manufacturing report.  Chicago’s disappointed yesterday, suggesting downside risk with today’s national report.  The market expects a small gain to 53.2 from 52.8.  Although the markets typically do not respond to it, we suggest the auto sales data is also important.  After a heady 17.7 mln unit pace in May, a still strong 17.2 mln unit selling pace is expected in June.  This speaks to the ongoing strength of US durable goods purchases.  
  • Brazil also reports June trade later today.  Exports are seen -5% y/y while imports are seen -13.5% y/y.  Brazil is grappling with high inflation and slow growth, and the central bank has decided to focus on inflation, but at the expense of the fiscal and growth outlook, which remain poor.  Last night, the Senate passed a measure boosting pay for the judiciary over the next four years, continuing a string of unhelpful legislation.  Rousseff will reportedly veto it, but we continue to think a downgrade to junk is likely in H2.

What to Watch Today

July 1st, 2015 6:39 am

Via Bloomberg:


* (All times New York)
* Economic Data
* 7:00am: MBA Mortgage Applications, June 26 (prior 1.6%)
* 7:30am: Challenger Job Cuts y/y, June (prior -22.5%)
* 8:15am: ADP Employment Change, June, est. 218k (prior
* 9:45am: Markit U.S. Manufacturing PMI, June final, est.
53.4 (prior 53.4)
* 10:00am: Construction Spending m/m, May, est. 0.4%
(prior 2.2%)
* 10:00am: ISM Manufacturing, June, est. 53.2 (prior 52.8)
* ISM Prices Paid, June., est. 51.0 (prior 49.5)
* Wards Domestic Vehicle Sales, Jun., est. 13.6m (prior
* Wards Total Vehicle Sales, June, est. 17.2m (prior

Overnight Flows

July 1st, 2015 6:35 am

Central banks sold 3s through 5s.

Central banks and other end users bought 7s through 10s.

Greece Starts to Cave

July 1st, 2015 6:23 am

Via FT:


Last updated: July 1, 2015 10:59 am
Tsipras backs down on many Greece bailout demands

Peter Spiegel in Brussels, Kerin Hope in Athens and Michael Hunter in


Greek prime minister Alexis Tsipras will accept most of the bailout creditors’ conditions offered last weekend, but is still insisting on a handful of changes that could thwart a deal according to a letter he sent late on Tuesday night.

The two-page letter to the heads of the European Commission, International Monetary Fund and European Central Bank and obtained by the Financial Times, elaborates on Tuesday’s surprise request for an extension of Greece’s now-expired bailout and for a new, third rescue rescue worth €29.1bn.


Senior eurozone officials involved in the talks cautioned Mr Tsipras’s remaining demands in the letter werre “not a handful of minor changes” and would have “significant fiscal impact” and may not be acceptable to creditors.

News of the letter sent equity markets higher, with the FTSE Eurofirst 300 up 1.5 per cent to 1,532.03, having hit a low of 1,499.98 earlier in the day.

On the bond markets, safe retreat German Bunds are tumbling, with yields now up by 0.04 percentage points to more than 0.80 per cent for the 10-year debt. Prices on ‘peripheral’ bonds from Europe’s shakier areas such as Italy, Portugal and Spain are higher.

The letter was sent as eurozone central bankers were preparing on Wednesday to raise the heat on Greece and its banks by restricting their access to emergency loans, a decision that could topple at least one Greek bank.

Although the bailout’s expiry at midnight Tuesday night means the extension is no longer on the table, Mr Tsipras’ new letter, which marks a significant climbdown from his previous position, could serve as the basis of a new bailout in the coming days.

Eurozone finance ministers are due to discuss Mr Tsipras’ new proposal in a conference call at 5:30pm, Brussels time (4.30pm BST).

Mr Tsipras’ letter says Athens will accept all the reforms of his country’s value added tax system with one significant change: keeping a special 30 per cent discount for Greek islands, many of which are in remote and difficult-to-supply regions.

Eurozone officails said keeping the exemption would significantly increase the size of the government’s budget shortfall and, more significantly, would perpetuate a highly complex VAT system. The complexity is one reason Greece has exceptionally low revenue from VAT.

On the contentious issue of pensions, Mr Tsipras requests that reforms passed in 2012 be implemented more slowly. He also requests that a special “solidarity grant” awarded to poorer pensioners, which he agrees to phase out by December 2019, be phased out more slowly than creditors request.

Eurozone officials said the changes, including making €400m in defence spending cuts in 2017 rather than this year, “could increase the fiscal gap by several hundred million at least”.

“The Hellenic Republic is prepared to accept this staff-level agreement subject to the following amendments, additions or clarifications, as part of an extension of the expiring [bailout] program and the new [third] loan agreement for which a request was submitted today, Tuesday June 30th 2015,” Mr Tsipras wrote. “As you will note, our amendments are concrete and they fully respect the robustness and credibility of the design of the overall program.”

In other market action, in Frankfurt, the Xetra Dax 30 is up 2.2 per cent, while the CAC 40 in Paris is up 1.7 per cent. Both indices reached session highs after the news of the leaked letter.

The euro, which has been sanguine during the latest round of the Greek imbroglio, is little changed on the day, up 0.1 per cent at $1.1146.

The European Central Bank’s governing council meeting in Frankfurt could increase the amount of collateral required for the emergency loans currently sustaining Greek banks after a last-minute appeal by Athens to extend its bailout was rejected by eurozone finance ministers.

Greece missed a €1.5bn payment to the International Monetary Fund that had been set for midnight on Tuesday, becoming the first advanced economy to miss a payment to the fund.

Eurozone finance ministers said ahead of the meeting that they were still open to reaching a debt deal with Athens. “We will take into consideration any offer . . . but any financial support must be provided against commitments to implement those badly-needed reforms that Greece is waiting for,” he said.

As the Greek financial system teetered, a poll showed a majority of Greeks would vote No in a snap referendum on Sunday on the terms of a previous bailout deal demanded by foreign lenders, although the lead has narrowed significantly after banks were closed this week.

In a hurriedly-organised conference call on Tuesday, eurozone ministers dismissed the unexpected request from Mr Tsipras rescue for a third bailout. The €29.1bn request, sent to the bloc’s €500bn rescue fund on Tuesday, was the latest twist in Greece’s acrimonious stand-off with its international creditors and took many in Brussels by surprise.

Athens’ request for a new bailout appeared aimed at swaying the ECB board, since without a programme in place and no negotiations under way the bank may be forced to take a tougher line.

Some European officials dismissed the appeal out of hand while others speculated it was an attempt by Mr Tsipras to strengthen his hand domestically ahead of Sunday’s referendum.

Alex Stubb, the Finnish finance minister, wrote on Twitter that the request for a new rescue would be dealt with “through normal procedures”, a signal it would not be handled with urgency. German politicians said Angela Merkel, the chancellor, would wait until after the referendum before beginning consultations with Athens.

However, Michel Sapin, French finance minister, insisted on Wednesday that an agreement between Greece and its creditors could still be reached before Sunday’s referendum.

“The goal is to reach an accord, before the referendum if possible,” he told RTL radio. “My role is to try until the last minute to find an agreement that reassures Greece, Europe and the world.”

Whatever the outcome of the referendum, there will be a need to continue the talks, Mr Sapin said. “A yes vote would mean that negotiations continue. With a No vote, there is a risk of Greece sliding towards an exit of the eurozone. It’s in the interest of France that it stays in the euro.”

In Athens on Wednesday, pensioners queued outside bank branches that had opened to allow those without debit cards to finally get access to €120 for the week.

Queues formed before dawn outside some branches and security guards were posted to stop non-pensioners from gaining access, while other banks have adopted an alphabetical entry system, with only those with surnames from A-J allowed in on Wednesday.

Campaigners for a “no” vote in Sunday’s referendum were peppering the queues on Athens main Stadiou street with flyers.

Secondary market Trading in Corporate Bonds Yesterday

July 1st, 2015 6:16 am

Via Bloomberg:

IG CREDIT: Best Volume in 2 Weeks; Issuance May Restart
2015-07-01 09:45:23.57 GMT

By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $16b vs $10.8b Monday, $15.4b the previous Tuesday. It
was the highest volume session since $16.7b on June 11.

* 10-DMA $13.2b; 10-Tuesday moving average $16.1b
* 144a trading added $2.1b of IG volume vs $1.9b on Monday,
$2.8b last Tuesday
* Most active issues longer than 3 years:
* RAI 4.45% 2025 was 1st with 2-way client flows
accounting for 88% of volume, selling 1.7x buying
* T 3.40% 2025 was next, client flows took 77% of volume
* GM 4.375% 2021 was 3rd, client flows at 61%
* HNZ 3.95% 2025 repeats as most active 144a issue; client
flows accounted for 70% of volume
* Bloomberg US IG Corporate Bond Index OAS at 152.2 vs 153.1;
2015 high/low 147.3/129.6; 2014 high/low 144.7/102.3
* BofAML IG Master Index +148 vs +146; +129, the tight for
2015 was seen Mar. 6; 2014 range was +151, seen Dec 16;
+106, the low and tightest spread since July 2007 was seen
June 24
* Markit CDX.IG.24 5Y Index at 70.0 vs 71.8; 76.1, the wide
for 2014 was seen Dec 16; 55 was seen July 3, the low for
2014 and the lowest level since Oct 2007
* No IG issuance Tuesday or Monday
* Last weeks issuance stats; Tenors, Ratings, Sectors
* Pipeline – Greece acceptance may allow issuance to restart

FX Musings

July 1st, 2015 6:13 am

Via Kit Juckes at Socgen:


FX Daily link above…
Greece is in arrears to the IMF, opinion polls show the ‘No’ side with a significant lead ahead of the referendum, albeit with signs that lead is falling in the face of empty ATMs and yet markets are calm. it’s all priced in,apparently. The impression I get is still that the consensus view expects Greece to reach a deal with creditors and remain in the Euro, either before Sunday or after a ‘yes’ vote. This may be right but seems complacent to me. The only thing we can be sure of is that there are many more twists and turns in this crisis and plenty of uncertainty ahead. For now, we’ll follow news headlines and possibly go on drifting back towards EUR/USD 1.10.

We are entering a crucial period for US economic data, expectations about whether and when the Fed will ever raise rates, and the dollar. Waiting for the Fed to act has felt at times a bit like waiting for England to reach the finals of the football world cup (OK, the Fed has raised rates since 1966, but you get the picture). But if we get a strong ISM, and more importantly a strong NFP report tomorrow, we are going to see market expectations of a hike in September harden significantly. 5-year TIIPS yields fell from almost 0.5% to -0.5% during Q1 as falling oil prices and weak data pushed rate hike talk away. Last month’s jump in the ISM has taken TIIPS back closer to zero yields but a significant further dollar rally needs yields up at 1%. Our forecasts for today (ADP 204k, ISM 53.2) would show an economy pointing in the right direction. Tomorrow’s NFP (+210k, with wage growth slowing a touch to 2.2%) likewise.

On our US forecasts, a modest dollar rally is more likely than an outbreak of risk aversion. There’s enough scepticism about the Fed policy outlook that it will take a while for sentiment to shift. USD/JPY may edge back up and if equity market feathers are not ruffled, then the high-beta currency bloc won’t get hit either. AUD/USD and NZD/USD will remain range-bound for a while longer. Perhaps there is more to go for in being long USD/CAD in the short run.

We have seen Sweden’s PMI come out soft at 52.8 and Norway’s come out even softer at 44. NOK bulls will need even more patience. The UK PMI is out at 09:30 BST and should be stronger (exp 52.5). GBP/NOK may make it through 12.5 for the first time since 2006. If the UK heat wave is too much, there’s cooler weather in the fjords… and the GBP/NOK strength is unlikely to last more than a few months.

Greece headlines

June 30th, 2015 9:43 am

Via Bloomberg:

BFW 06/30 13:33 Greece Asks for 2-Yr Bailout Program From ESM: PM’s Office
BN 06/30 13:30 Greece Asks for 2-Year Bailout Program From ESM: PM’s Office

Greek PM Tsipras Asks European Union for a New Bailout Program
2015-06-30 13:37:24.189 GMT

By Eleni Chrepa and Theophilos Argitis
(Bloomberg) — Greece’s government has asked for a two-year
bailout program from the European Stability Mechanism, according
to a statement from the office of Prime Minister Alexis Tsipras.
The request is to cover all of the country’s financial
needs for the next two years, along with a debt restructuring
plan, the Greek government said in the statment.
The government will continue negotiations seeking a
“viable agreement” within the euro zone, it said.