Chris Wood Explains Why Markets Have Probably Peaked, And Why Germany Could Still Blink

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Christopher Wood of CLSA has a tidy sumup of the Greece situation in the latest version of his GREED & Fear note.GREED & fear was asked this past week what were the possibilities that stock markets have seen their highs for the year? Four weeks ago GREED & fear had put the odds at “as high as 35%” (see GREED & fear – Fine lines, 19 April 2012). They are now at least 50% and probably higher, with the potential trigger of a rally from likely lower levels the policy response that will come sooner or later from Bernanke and Draghi if the deflationary action intensifies, as is likely.  

It is likely because the Greek election is still one month away with the polls scheduled for 17 June. This is a long time in the markets. With the far-left Syriza party leader Alexis Tsipras seemingly intent on abandoning Greece’s latest debt restructuring deal, and also still seemingly leading in the opinion polls, the issue will be whether the electorate can be convinced by the two mainstream parties, New Democracy and Pasok, that voting against debt restructuring and staying in the euro is not an option.  

That is also the message being sent by German spokesmen, including Financial Minister Wolfgang Schäuble. Still it is not quite as simple as that. Germans love order and Berlin will be as concerned as everyone else, if not more so, about the potential chaos triggered by a Greek exit. This is why a potential Syriza-led government would have more room to negotiate than is commonly supposed. Still a total refusal by Athens to compromise in any way would leave Berlin and Brussels with little option but to let Greece go. Meanwhile, the main threat ahead of the June poll is deposit outflows from the Greek banks as everyone starts to hoard physical euro.

Thus, The Guardian reported yesterday that Greek savers have withdrawn €3bn from banks in the 10 days since the 6 May election. Greek private sector deposits had fallen by 17%YoY or €34bn to €171bn as at the end of March.

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