Bilateral meetings between Greek, German and French leaders about the terms of the Greek bailout will be key for stock market sentiment this week.
The negotiations will be difficult, especially the clash between France and Germany, as the latter has made it clear on several occasions recently that Greece must fully meet the bailout conditions if it is to receive further financial support and any softening of bailout terms is out of question. These negotiations will be vital for Greece’s future in the eurozone and will be the key source of market volatility this week. Apart from potential bad news on the negotiation front, continued speculation about ECB intervention on the Spanish bond market could keep global equity markets in a positive mood in the days ahead.
On the global macro data front, the key releases to watch this week will be the advanced eurozone PMIs for August on Thursday. The PMIs will help us to gauge the near-term momentum of the eurozone economy: with the expected improvement in manufacturing PMIs, this release could support the stock markets. Domestically, this week starts with today’s release of industrial output for July, followed by core inflation for July (Tuesday) and retail sales and unemployment rate (Friday). We expect somewhat better industrial output and retail sales figures than last month, but still indicating moderate economic activity. The inflation decline and flat core inflation in July will provide arguments for the dovish MPC members: however, we do not look for rate cuts as early as September as inflation is still above the upper target band of 3.5%.