U.S. equity index futures are pointing to a lower open on Tuesday and the dollar is rising against the euro which slid again on Tuesday amid reports that ECB President Mario Draghi told the European Parliament on Monday that Greece won’t be included in the ECB’s quantitative easing QE bond buying program until the end of its bailout review and its debt is made sustainable, according to Greek newspaper Kathimerini.
Greece’s sovereign debt load is in the spotlight yet again after no deal was reached on Monday May 22nd between eurogroup finance ministers over Greece’s next financial bailout package.
Two of Greece’s main creditors in the eurogroup, Germany and the Netherlands, have acknowledged that they are unwilling to lend more money to Greece without the participation of Greece’s other main creditor, the International Monetary Foundation (IMF).
The eurogroup and the IMF are divided over how to place Greece on a sustainable path after its rescue program ends this year.
Greece is faced with a looming € 7.3 billion ($8.2 billion) payment it needs to receive from its creditors before July in order to avoid defaulting on its sizeable debt pile which stands at 180 percent of its GDP, the highest in the 19 member euro area.
Germany has an important upcoming election in September and Greece’s endless bailout needs remains a thorny and unpopular political issue for German politicians to address publically before the German public.
Although Greece Prime Minister Alexis Tsipras was hoping to have Greece’s debt bailout plans worked out with their creditors by now to make its debt load more sustainable, giving the country the opportunity to join the ECB’s quantitative easing bond buying program, it’s not likely to occur at the earliest until after Germany’s federal elections on September 24th.
If Greece wants to receive € 7.3 billion ($8.2 billion) in bailout funds from its creditors before the next euro group meeting in mid-June, it will still have to commit to imposing economic reforms.
Draghi’s Comments To European Parliament
Besides concerns about the sustainability of Greece’s debt load and the need for economic reforms in the country, some recent comments on Monday from ECB President Mario Draghi to the European Parliament about the economic outlook have also helped the euro to decline on Tuesday.
ECB President Draghi pointed out some good news that real GDP in the euro area has expanded for 16 consecutive quarters and grew by 1.7 percent year-on-year during the first quarter of 2017 with downside risks diminishing; however, he also admitted that domestic cost pressures from wages, are “still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective.”
According to Draghi, more monetary accommodation is needed in the euro area to help inflation to move closer to the ECB’s target that is just below, but close to, 2 percent over the medium term.
“For domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation” Draghi said.
U.S. Economic Calendar
Investors will be paying close attention this week to the May jobs report due on Friday from the U.S. Bureau of Labor Statistics. In April the U.S. economy added 211,000 non-farm payroll jobs.
On Thursday private payroll processor ADP will report private sector employment change for May, the same day that jobless claims are reported alongside the PMI Manufacturing Index, Construction Spending, and the ISM Index.
Starting the week off on Tuesday, Consumer Confidence and Personal Income and Outlays are due.
On Wednesday its MBA Mortgage applications, Chicago PMI, Pending Home Sales Index, and Car Sales will come into focus.
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