World Economy

Greek Vote Reverberates in Global Markets

Greek Vote Reverberates in Global MarketsGreek Vote Reverberates in Global Markets

European stock markets retreated on Monday but losses were less sharp than feared after Greece rejected creditors’ austerity demands in a weekend referendum.

The relatively muted reaction indicated that the result had been somewhat priced-in and that it does not necessarily mean that Greece will crash out of the eurozone, according to analysts, NewsNow reported.

In late morning deals, Frankfurt’s DAX 30 shed 1.10% to 10,936.75 points and the CAC 40 in Paris fell 1.33% to 4,744.41 points.

Madrid lost 2% and Milan slid by 2.73% in value. Greece’s main index remained shut.

Outside the eurozone, the FTSE 100 index decreased by 1.07% to stand at 6,515.67 points compared with Friday’s close.

In foreign exchange, the euro dropped to $1.1059 from $1.1107 late on Friday.

The shock results from Greece’s referendum on Sunday sent markets into a tailspin during Asian trade on Monday, with US crude suffering the biggest declines, but analysts seemed relieved that the impact wasn’t worse.

“I am going to be the first to put my hand up and say I expected a much more aggressive reaction to a ‘no’ vote. It has to be said that despite markets adopting a definitive risk-aversion feel, the mood has felt quite calm and there is little panic. It’s almost as if Asia-based traders are waiting for confirmation on trading moves from European traders before positioning short-term portfolios,” said Chris Weston, chief market strategist at IG, in a note.

The surprise resignation of Greek finance minister Yanis Varoufakis and rising bets on a ‘Grexit’ will likely keep sentiment shaky, despite Athens denying that the ‘no’ vote could lead to an exit from the eurozone.

The increased probability of a ‘Grexit’ has moved above 50% for the first time and that could see a risk-off mood prevail, according to ING. Meanwhile, Wolfgang Piccoli, managing director at Teneo Intelligence, told CNBC that the likelihood of a ‘Grexit’ now stands at 75%, from 15% previously.

 A Test

The danger of contagion from Greece’s referendum rejecting a European aid offer is testing the world’s most-developed nations again, after eight years of rolling financial crises, Bloomberg said.

With stocks sliding and the dollar rising as a haven, Group of Seven finance chiefs are working on a statement on Greece following Sunday’s referendum, according to an official from a G-7 government. While it makes up less than 0.3% of the world economy, Greece has added a potential brake on growth by injecting doubts about the permanent cohesion of the eurozone.

This time, global policy makers are confronting danger with an expanded toolkit, from permanent swap lines to provide dollars to expanded domestic bank-rescue facilities. With a surge in borrowing costs among more highly indebted euro members, such as Spain and Italy, posing a key risk, European officials will be on the front line of any response.

“It’s very important for authorities, via the central banks, to continue to give the market confidence there’s ample liquidity in the financial system given the events in Greece,” said Martin Whetton, an interest-rate strategist at Australia & New Zealand Banking Group Ltd. in Sydney who previously worked for a decade in Europe. “The euro group will seek to assure markets they’ll provide whatever liquidity is needed for banks to fund themselves.”

 Monetary Policy

Monetary policies abroad could also be deployed into any market turmoil. Analysts already anticipate Japan and China to add stimulus in coming months, and a blow to Europe’s growth outlook could encourage the Federal Reserve to put off raising interest rates. For emerging markets, any exodus from riskier assets would put pressure on them to stem currency declines.

The euro was weaker against all 16 major peers by 11:23 a.m. in Tokyo, dropping 0.6% versus the dollar and 0.7% to the yen. The yield on 10-year Treasuries plunged nine basis points while a benchmark of Asian shares, the MSCI Asia-Pacific Index, was down 1.4%.

Economists at JPMorgan Chase & Co. and Barclays Plc were among those concluding the referendum results make it more likely than not that Greece will leave the euro. JPMorgan warned the exit could come “under chaotic circumstances.”

“I don’t think anyone should be in any doubt: the Greek situation has an impact on the European economy, which has an impact on us, and we cannot be immune,” UK Chancellor of the Exchequer George Osborne told the BBC’s “Andrew Marr” program on Sunday, ahead of a Monday meeting of UK officials to be chaired by Prime Minister David Cameron.

 Credit Risk

The Markit iTraxx Europe Index climbed four basis points to 79 basis points, according to data compiled by Bloomberg. A gauge of financial companies’ credit-default swaps rose five basis points to 97 basis points, the highest since March 2014.

A US-listed exchange-traded fund tracking Greek stocks fell 9.7% in early New York trading, while American depositary receipts of National Bank of Greece SA plunged 16%. Greece’s stock exchange has been closed for the past week.

Banks led declines in the Stoxx 600 as more than eight shares fell for every one that rose. Trading volumes were 13% greater than the 30-day average, according to data compiled by Bloomberg.

Rolls-Royce Holdings Plc slumped 8.3% after cutting its full-year profit forecast and halting a share-buyback program to preserve cash. Humana Inc. climbed 3.3% in early New York trading after Aetna Inc. agreed to buy the rival health insurer last week. Aetna fell 2.6%. E-mini futures on the S&P 500 dropped after the index posted its biggest weekly decline since March, falling 1.2% last week. The MSCI Emerging Markets Index lost 2.1%, the most in a week. Russia’s ruble and South Africa’s rand fell at least 0.7%.