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Markets rally as Tsipras’ latest head-fake points to capitulation

Markets are starting July in festive mood after suggestions that the Greek government may yet cave in to its creditors’ demands for more reforms and austerity, and avert a worst-case scenario of exit from the Eurozone.

The S&P500 index future is up 0.7% ahead of the official market opening while the NASDAQ100 future is up 0.8%, on the back of even stronger gains made by Asian and European markets overnight.

The main reason for that optimism is the leaking of a new letter from Greek Prime Minister Alexis Tsipras to the country’s creditors appearing to offer more concessions in an attempt to get new financing. That follows a last-ditch approach to Eurozone governments yesterday, in which he asked for a new €29 billion loan to cover debt repayments over the next two years.

“After Tsipras and (finance minister Yanis) Varoufakis have shattered trust so badly, after the bailout has expired and after Tsipras called the referendum and started to campaign for a “no”, the clock cannot be simply set back to where it was Friday night before Tsipras broke off the talks and called the referendum,” Holger Schmieding, Berenberg Bank’s chief economist, wrote in a note to clients. “A deal is still possible, but it would require more than just this letter. The situation remains fluid.”

Tsipras’ proposal is certainly going nowhere this week, at least. German Chancellor Angela Merkel told lawmakers in the Bundestag that there was no chance of any talks about new deals before Sunday, when the Greeks vote in a referendum on whether to accept the last proposals from the creditors.

Opinion polls show that support for the left-wing government’s confrontational course is ebbing fast since the imposition of capital controls and bank withdrawal limits at the weekend. Around 35,000 people gathered in front of parliament last night to protest and there were unruly scenes Wednesday when the government allowed some bank branches to open to let pensioners access their pensions.

As it stands, the “no” camp is still ahead in the polls, but its lead over those who are willing to accept the creditors’ demands has shrunk from 27 points to 9 in the space of a few days.

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Tsipras is himself due to address the Greek nation again later today to “clarify” the situation over the referendum in order to reopen the negotiating channel. That comes against a backdrop of some unconfirmed reports that he is getting ready to cancel the vote.