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Daily Agenda: Greek Letter Hints at Break in Debt Impasse

Russia turns off gas flows to Ukraine; fund managers prepare for a fight with Puerto Rico; ACE Ltd. to acquire Chubb Corp.

With another payment deadline missed, prospects of a Greek default remains the primary focus of risk narratives for global financial markets. A nearly 2 percent upswing in the Stoxx Europe 600 Index and sell-off in Bunds suggests that investors are wagering that a last-minute deal can be reached as Athens and Brussels blink, or perhaps that the impact of a Grexit on the global economy will be less devastating than had been feared. In a note to investors this morning Société Générale’s economics department gave its take, saying “at this stage, we maintain our probability of 60 percent that, ultimately, a semi-stable agreement will be reached allowing Greece to remain in the euro, but it will be a lengthy process.” Optimism for a breakthrough may be rewarded. On Wednesday morning, a letter from Greek Prime Minister Alexis Tsipras to European Commission President Jean-Claude Juncker dated yesterday, June 30, was made public. In the letter Tsipras offers to meet creditors halfway, though he still remains firm on entitlement spending.

Asset managers prepare for a fight over Puerto Rico. Oppenheimer Funds, believed to be the asset manager with the largest individual exposure to bonds issued by the government of Puerto Rico, officially stated yesterday that it will challenge any attempt by San Juan to restructure its debts. On Monday Governor Alejandro Garcia Padilla called on the U.S. government to aid the territorial commonwealth as it seeks to renegotiate roughly $72 billion in outstanding securitized obligations.

Massive insurance merger announced. Today Zurich–headquartered ACE Ltd. announced an agreement to acquire New Jersey–based rival Chubb Corp. for $28.3 billion in a deal combining both cash and stock. Terms of the deal represent a premium of roughly 30 percent to Chubb’s closing stock price on Tuesday. While ACE shareholders will control 70 percent of the new entity, the Chubb brand name will be used by the company.

European manufacturing holds steady. Final Markit euro-zone manufacturing sector purchasing managers index figures released today registered a marginal improvement over May. Aggregate activity for the common currency region remained steady with the headline index registering at 52.5 while Greece’s industrial sector continues to shrink at 46.9. U.K. headline PMI for manufacturers fell to 51.4, the slowest pace in two years, as export orders remain weak.

Moscow turns off the gas.Russian state-owned natural gas giant Gazprom today suspended deliveries to Ukraine after Kiev announced that it would halt purchases from its eastern neighbor. The notice is the latest in a round of escalating rhetoric between the two nations as the conflict in eastern Ukraine between government and pro-Russian separatists drags on.

Chinese legislation strengthens governmental control. New national security-focused legislation passed today by China’s Standing Committee of the National People’s Congress provides Beijing with greater authority to act unilaterally in defense of economic and political objectives. The law strengthens Chinese President Xi Jingping’s ability to continue a sweeping anticorruption program under which more than 100,000 former officials have been prosecuted.

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