The past few weeks have experienced market sentiment driven by the news flow surrounding Greece, and at the time of writing attempts to reach an agreement have so far failed.
Should Greece and its creditors come to an agreement, then this will allow the disbursement of €7.2bn (£5.1bn) in bailout funds that will allow the country to make the €1.5bn payment due to the International Monetary Fund (IMF) on June 30.
Without this payment, Greece will potentially be in default, with significant negative consequences domestically.
Even if we do see a compromise in the coming days, Greek prime minister Alexis Tsipras still has to contend with a split within the Syriza coalition in Greece.
There is still a good chance of the deal failing and Mr Tsipras having to resign, which could take Greece beyond the June 30 IMF payment deadline.
The European Central Bank (ECB) has a role to play in this scenario. If a deal can been agreed, such that the ECB expects the bailout funds to be paid in due course, then it could allow Greece to issue more short-term treasury bills that would fund the IMF payment.
Hence there will be further uncertainty and volatility, but the institutions at the centre of this crisis still appear to have the ability to avert a formal default, even if we do see a late payment.
We are not there yet, but our base case remains that a deal will be reached in the coming days. Clearly, it won’t be perfect and it certainly won’t be a long-term fix.
A disbursement of the existing bailout funds will cover Greece only until mid-July, and so an extension of the existing bailout for somewhere between three to nine months looks likely.
It seems certain that Greece will have to remain on ‘life support’ for some time, navigating a fine line between reforms to keep creditors happy on one side and domestic frustration with continued austerity on the other.
Even if Greece did default, there would be many hurdles before a euro exit or wider European Union departure took place.
We continue to watch the situation very closely, but remain overweight Europe given the tailwinds of ongoing quantitative easing from the ECB and an economy on an improving trend.
Although headlines have been dominated by Greece, there has been plenty going on elsewhere.
Volatility in sovereign bonds has continued, as German bunds sold off since investors reappraised the outlook for inflation and unwound consensus trades.
Data in the US has also picked up, with another set of strong employment figures and retail sales bouncing well.
Overall, the outlook – assuming the Greek issues can be pushed down the road – looks reasonable for risk assets against a backdrop of improving economic growth, Chinese intervention to support growth and continued quantitative easing from the ECB and the Bank of Japan.
The second half of 2015 has the potential for stronger economic growth globally, while removing the cloud of uncertainty over Greece – even if for only a few months – is likely to see risk assets make further progress.
