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European crisis takes precedence over U.S. data

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The game of economic and financial brinksmanship between Greece and its creditors appears to be reaching its denouement with the rejection of Greek requests for aid and the calling of a snap-referendum in Athens on whether the country should accept the terms put forward by the Troika. With Greece likely to move into arrears on the €1.5 billion owed to the International Monetary Fund on Tuesday, capital controls will be put into place to prevent more capital outflows out of the financial system and to limit the exposure of the European financial system to a possible collapse of the banking center in Greece. While this will not move Greece into technical default, it sets the stage for what we consider to be the real drop-dead date in this crisis, July 20, when Athens will be required to pay the European Central Bank (ECB) €3.5 billion. In total, ECB exposure to Greece is about €149 billion, of which €38.5 billion is against good collateral, which implies a total loss of €110.5 billion under conditions of a total default by Athens. 

Apart from the Greek drama, the focus in the U.S. will be on the spate of top-tier data during a holiday-shortened week, which includes the June employment report, new data on housing, construction, consumer confidence and national manufacturing conditions. During the past several weeks, the data has come in above expectations with strong upward revisions to income and spending, which bodes well for growth.

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