Agreekment: Harsh conditions involved

EU Mid-Market Update: Europe and Greece confirm they have reach an agreement that could pave way for a 3rd bailout program; but harsh conditions involved

Notes/Observations

- China Jun Trade Balance registers a smaller-than-expected surplus on improving componets ($46.5B vs. $56.7B); Exports rose for 1st time in 4 months while imports saw smallest decline in 6 months.

- After 14 hours in the Eurogroup and 17 hours at the Euro Summit, the official lenders and Greece have a 'deal' to start negotiations on an ESM program but subject to strict conditions

- Greek government will have to legislate by Wednesday on a number of measures to re-establish a relationship of trust with the creditors

- Tsipras could call snap elections after reaching an agreement with creditors; also could expel Syriza party rebels

Economic data

- (JP) Japan May Final Industrial Production M/M: -2.1% v -2.2% prelim; Y/Y: -3.9 v -4.0% prelim; Capacity Utilization M/M: -3.0% v -0.4% prior

- (NO) Norway Q2 House Price Index Q/Q: 3.2 v 1.6% prior

Fixed Income Issuance:

- None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Equities**

Indices [Stoxx50 +1.7%, FTSE 100 +0.7% at 6,716, DAX +1.5% at 11,477, CAC-40 +1.9% at 4,998, IBEX-35 +1.6% at 11,215, FTSE MIB +1.5% at 23,278, SMI +1% at 9,227, Athens Stock Exchange closed, S&P 500 Futures +0.5% at 2,078]

- Market Focal Points/Key Themes: European equity markets open sharply higher (adding to Friday's gains), as euro zone officials reached an agreement related to new offer for Greece; Markets now to focus on any ECB commentary, later today euro group and possible Greek parliament vote later this week; US earnings pick up later this week; Shanghai Composite +2.4%

By Sector

- Technology [DKSH DKSH.CH -3% (H1 results below ets)]

- Industrials [Alent ALNT.UK +44% (takeover offer)]

- Stoxx50 Sectors [Consumer Non-Cyclical +1.7%, Telecom +1.5%, Industrials +1.5%, Basic Materials +1.5%, Consumer Cyclical +1.5%, Technology +1.5%, Financials +1.5%, Energy +1.4%, Utilities +1.2%]

Speakers

- EU President Tusk: Euro summit had unanimously reached agreement on Greece on ESM bailout, serious reforms and financial support. Agreement meant continued support for Greece but the country must meet strict conditions. Greece and other National Parliaments must agree before negotiations can begin. Finance ministers would urgently discuss bridge financing

- Eurogroup chief Dijsselbloem stated that trust was a key issue as was debt and key financial needs. Fund to be set up to monetize some Greek State assets and help repay back debt and recap banking sector. €25B to be used for recapitalization of Greek banking sector. Greece Parliament must quickly legislate on many issues by Wed, July 15th. Eurogroup could have a call on Wed followed by national parliamentary approval. Once Parliamentary approvals are completed the Eurogroup would give a formal launch to bailout negotiations

- German Chancellor Merkel: Euro Summit decision allowed vote in Bundestag (lower house) and she could recommend to proceed with Greece negotiations with full confidence. She ruled out any confidence vote in German parliament and that Eurogroup was ready to address Greek debt sustainability. Nominal debt haircut for Greece had been forbidden. Greece path to growth would be a long one; situation in country was very tense; Europe to help Greek govt with its humanitarian crisis

- Greece PM Tsipras: Country would be able to stand on its feet following the agreement but will continue to fight to return to growth. Agreement was tough but averted transfer of assets abroad; protected stability of the banking sector and averted extreme scenarios. Measures of deal implementation would inevitably cause recession but convinced that Greek people would support the deal. Managed to gain Greek debt restructuring and secure medium-term financing. Summit agreement to put talk of Grexit to an end

- EU Commission: Greece remained at risk should it fail to complete negotiations. Greece needed €7.0B by July 20th and another €5.0B by mid-August (**Note: Greece has redemptions of €4.2B in July and €3.4B in Aug and pay the ECB €3.5B on July 20th)

- ECB said to maintain its emergency funding (ELA) to Greek banks at €89.0B

- Greece Labor Min Skourletis: Snap elections are needed in 2015 but need to stabilize the situation. Saw two scenarios to implement a creditor agreement: 1) borrowing votes from other parties or 2) establish unity govt. Could not blame people who will find it difficult to say 'Yes' to creditor agreement; Country is being punished

- German Parliamentary Finance chairwoman Arndt-Brauer: Coalition likely to pass agreement on Greece

- Iran nuclear negotiator Araghchi stated that he could not say whether an agreement with P5+1 powers could be achieved by today but remained hopeful of one in the near future

Currencies

- The news of an agreement on Greece sent the EUR/USD higher towards the 1.12 level as it could pave the way for a third bailout program. However the pair drifted off its best levels as participants assessed the risks on Greece from the implementation of the program. The Wed vote in Greek Parliament being the key focus at this time. Analysts noted that a Grexit was reduced but remained a risk. Euro could fall towards 1.05 if Greek Parliament did not pass reforms by Wed.

- Other dealers noted that signs of stabilization in Euro could also have the Fed remain on course for a rate hike later this year which helped the USD in the session.

- Oil lower in early European trading over optimism that Iran was close to an agreement with P5+1 powers on a nuclear program which would then reduce sanctions against the country

**Fixed Income:

- Bund futures trade at 150.39 down around 30 ticks on the day trading after trading as low as 149.49 after the EU and Greece reached a potential bailout agreement. The fall in the Bund continues from Wednesday's 154.24 high, with a drop of over 400 ticks since then. Analysts target downside support to come from a test of the medium term uptrend at 149.13 followed by 148.89. A break of this level could see a test of the 148.23 level, the contract lows. To the upside analyst see 151.13 as near term resistance, above which could see a move back up to 151.62 then 151.87.

- The Euribor strip continues to steepen, with white months gaining strength and the back end of the strip falling by as much as 4bp earlier in the session. Jun16-17 calendar continues to rise trading as high as 21bp a rise of 4bp from Friday. The Jun16-17 spread is trading back at levels seen at the end of June, with June 10th highs of 24bp the next target should the sell off in Bonds continue.

- Monday's liquidity report showed Friday's excess liquidity fell slightly to €394.7B a fall of €3.55B from €398.25B prior due to a €3.5B increase in AFs and MonPol portfolios. Use of the marginal lending facility fell slightly to €219M from €240M prior.

- UK Gilt futures trades 114.94 down 45 ticks on the day but off the lows of 114.70. The 114 handle was reclaimed on that back of renewed hopes of a Greek bailout, with analysts citing a break of today's lows could trigger a move towards 114.27/07 a break of which would be new contract lows and can target 112.84. To the upside the gap fill is at 115.32 with a move above seeing 115.94 as strong resistance. 116.31 above here would be needed to fill Friday's gap.

Weekly liquidity preview

- Total Euro Government Bond Supply: €30.43B. Notable auctions include Wednesdays new €5.0B 10y 8/25 Bund issuance, Thursday's €6.0B Spanish 3,10,15, 26yr issuance and the €7-8B French OAT 3,5, 6yr issuance. Total net cash flow for the week will be positive, with France, Austria, Italy and Netherlands to repay €78.7B in coupons and redemption's.

- UK net cash flows are to be slightly negative with £90M to be repaid on Friday. Wednesday will see the DMO sell a new £1.5B 11yr Gilt linker.

**Political/In the Papers:

- (GR) Eurozone offers Greece terms of a bailout with financing around €82-86B; Features "time out" from EMU option if Greece does not agree to terms - financial press; Report noting the new much tougher set of parameters from creditors will have to be approved by Greek parliament by Wednesday

- (GR) Greece govt said to be agreeable to the latest set of demands from European creditors - financial press; Govt agrees to legislate the first set of measures in a vote on Wednesday.

-(GR) Greek official: There are still issues over role of IMF and privatisation fund; seeking smaller IMF role in the new bailout program.

-(GR) ECB said to have planned a teleconference for Monday to discuss ELA funding for Greece banks - financial press

- (IR) Iran President Rouhani: Two sides are very close to signing nuclear agreement - financial press; Separate report noting the deal could be announced as soon as Monday.

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- (EU) EU, U.S. hold Trans-Atlantic Trade and Investment Partnership (TTIP) Negotiations through Friday

- (IT) Italy Debt Agency (Tesoro) to sell total €5.25-7.5B indicated range in 2018, 2022, 2032 and 2046 BTP bonds

- 05:30 (DE) Germany to sell €2.0B in 6-month BuBills

- 05:30 (BE) Belgium Debt Agency to sell combined €1.8-2.6B in 2019, 2025 and 2041 OLO bonds

- 05:30 (VN) Vietnam to sell 3-year, 5-year, 15-year bonds

- 06:00 (IS) Iceland to sell Bills

- 06:00 (TR) Turkey to sell new 2020 Bonds

- 06:00 (RO) Romania to sell Bonds

- 06:00 (IL) Israel Jun Trade Balance: No est v -$0.9B prior

- 06:45 (US) Daily Libor Fixing

- 07:30 (BR) Brazil Central Bank Weekly Economists Survey

- 08:00 (IN) India Jun CPI Y/Y: 5.1%e v 5.0% prior

- 08:00 (ES) Spain Debt Agency (Tesoro) would announce size of upcoming actions

- 08:00 (IN) India announces details of upcoming bond auction

- 08:15 (US) Baltic Dry Bulk Index

- 08:50 (FR) France Debt Agency (AFT) to sell combined €5.8-7.0B in 3-month, 6-month and 12-month bills

- 09:00 - (EU) Eurogroup meeting on Greece

- 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:45 (EU) ECB announces Covered-Bond Purchases

- 11:30 (US) Treasuries to sell 3-Month and 6-Month Bills

- 12:30 (DE) German Chancellor Merkel on ARD TV

- 14:00 (US) Jun Monthly Budget Statement: $50.0Be v $70.5B prior

- 16:00 (US) Crop Condition Report

- 19:01 (UK) Jun BRC Sales Like-For-Like Y/Y: No est v 0.0% prior

- 20:00 (SG) Singapore Q2 Advance GDP Q/Q: 0.9%e v 3.2% prior; Y/Y: 2.5%e v 2.6% prior