Greece was the main story moving the financial markets last week and, after some major developments over the weekend, Greece is an even bigger story on Monday.
By Peter Martin
Monday, June 29, 2015
Greek Prime Minister Alex Tsipras brought a surprise end to negotiations with his country’s creditors by announcing a referendum for July 5 on whether to accept the terms of the new bailout. That move precipitated a decision by eurozone finance ministers to deny a Greek request for an extension of existing bailout measures beyond Tuesday. The old adage maintains that a week is a long time in politics, but with Greece’s IMF repayment due on Tuesday June 30, when its current bailout also expires, the week-long wait for the referendum will not just seem like an eternity — the Greek people may find themselves casting votes on an issue that has already passed its expiry date.
The ECB said it would continue to ‘work closely with the Bank of Greece to maintain financial stability,’ capping its emergency liquidity assistance (ELA) to Greek banks at the level decided on Friday June 26, though the central bank says that it stands ready to reconsider its decision. Greek banks rely on those funds to keep them liquid and in an attempt to ward off panic withdrawals, capital controls have been introduced, limiting the amount that can be withdrawn from ATMs to €60 a day until July 6, while bank branches throughout Greece are set to be shut for the whole week. The Athens stock exchange is also closed on Monday as part of the move to protect the Greek financial system.
The reaction to the crisis has been marked, with stock prices throughout Europe slumping on Monday. The German DAX lost 2.56%, having been down well over 3% in earlier trading, while the French CAC slid 2.97% and the Spanish IBEX 35 plunged 3.62%. Losses were unsurprisingly led by banking stocks, while in the forex market the euro fell 0.53% against the dollar and 0.41% against the pound.
The negative sentiment has bled across global stock exchanges, with losses of more than 2% suffered in Asia by the Nikkei 225 and the Shanghai Composite Index, while the UK’s FTSE 100 index dropped 1.43% by mid-afternoon in London. While not as severe as some of the moves elsewhere, the slides were also echoed on Wall Street. Shortly after the opening in New York , the Dow Jones was down 138 points or 0.77% at 17,808, while the S&P 500 Index fell 0.82% to 2084.3.
Elsewhere in the forex market, the Loonie weakened against the US dollar, despite evidence of firmer industrial prices. The Canadian Industrial Product Price Index (IPPI), which measures factory gate prices, rose 0.5% in May, following a 0.9% decline in April. The increase was higher than expected, driven by a sharp rise in energy prices, and pushes the annual index change up from -2.4% in April to -1.3%. With that annual rate still in negative territory, there remains no inflationary worries for the Bank of Canada; the firming of prices is likely to be welcomed by the central bank, but until we see this trend extended, the impact on monetary policy will be negligible. USD/CAD rose 0.58% to 1.2393 in early trading.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.