Following yesterday’s referendum in Greece, in which the Greek people delivered a clear ‘No’ vote to bailout terms of austerity-for-cash, a Greek exit from the euro looks closer than ever, sparking anxiety in stock markets around the globe.
By Peter Martin
Monday, July 6, 2015
While a ‘No’ vote was not a surprise as such, the forecasts going into the plebiscite had predicted a close-run contest, so that such a result could only have been partially priced into financial markets. What was unexpected was the decisive nature of the outcome, and unless a deal can be struck quickly with creditors to aid Greek banks — which are hugely reliant on the ECB’s Emergency Liquidity Assistance (ELA) — lack of solvency could soon force the hand of Greece in exploring extreme measures, such as issuing parallel liquidity. The ECB is set to hold a conference call later today regarding the ELA lifeline, while eurozone policymakers will meet for emergency talks on Tuesday. Greece’s finance minister Yanis Varoufakis resigned earlier today, saying he will ‘wear the creditors' loathing with pride’, and his departure could help to smooth the path of any future debt talks.
Unsurprisingly, the euro has weakened in the wake of these developments, but the decline has been measured rather than precipitous, sinking 0.75% against the US dollar to 1.1026 and 0.62% against the British pound to 0.7090. Though risk sentiment has been dented by the Greek vote, price movements suggest there is little fear of a Europe-wide crisis, and though the safe-haven Japanese yen has seen a little jump (USD/JPY -0.17% and EUR/JPY -0.88%), the prices of gold and silver, often seen as stores of value at times of crisis, have both declined, gold slipping 0.19% to $1166.6 per ounce and silver falling 0.39% to $15.63 per ounce.
In Europe, stock market losses were pronounced, the German DAX sliding 1.55% while the French CAC 40 plunged 2.04%, and these declines were echoed to some degree on Wall Street in early trading. Shortly after the open in New York, the Dow Jones was down 101 points or 0.57% at 17,628 and the S&P 500 Index fell 0.50% to 2066.5.
The major economic releases of the day provided data on the non-manufacturing side of the US economy and painted something of a mixed picture for June. Markit’s final reading of its services PMI came in unchanged from last week’s flash reading of 54.8, which points to softness in comparison to May’s level of 56.8. The survey suggests slowing in hiring and output, while backlogs shrank, which could hurt future momentum. The ISM’s non-manufacturing index, meanwhile, improved to 56.0 in June, from May’s level of 55.7, showing higher levels of such key levels as employment and new orders, though the rises were from disappointing levels in the previous month. Alongside last Thursday’s disappointing payrolls figures, the services PMI suggest June may been a soft month for the economy, but crucially both of today’s reports do still show expansion. On this evidence, the US economy is still chugging along, but probably not fast enough for the Fed to contemplate raising rates just yet.
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