If the morning notes hitting our inbox this morning are anything to go by, Greece is at the forefront of investors minds this morning.
Here’s a wrap-up what Australia’s big four banks have to say on the events that transpired over the weekend, along with the reaction likely to be seen across financial markets.
Emma Lawson, senior currency strategist at NAB.
“Well, we didn’t see that coming, neither did the Institutions (nee Troika), nor the markets. Greece has pulled the negotiations plug at the last minute and put the deal to a national referendum (5 July) AFTER the deadline for payment (1 July). The Eurogroup has said there will be no bailout extension, the ECB has frozen the ELA and the Greek banks are to be closed for the week. That leaves a high degree of uncertainty with regards to payments, Greek bank solvency and indeed the future of the EUR; not just a Greek exit from the Euro. This will not be solved easily or soon.
Where does that leave us? Monday is likely to be an uncertain one for financial markets, trying to make head or tail of a situation that is unprecedented. There will be a mass of headlines and speculation. When that happens, there is usually a run to safety. Until now most had assumed there would be a last minute deal; that is no longer possible”.
ANZ economics team.
“It is really quite hard to know where to begin in describing events over the past 48 hours. In any other weekend, news of China easing policy further would be a headline-leading event, but not this weekend. Instead we are left pondering the real prospect of Greece leaving the euro area after a tumultuous breaking down of negotiations following the announcement (on Twitter no less) by Greek Prime Minister Tspiras that a referendum on creditors’ demands will be held on 5 July. The issue: Greece is due to make a payment to the IMF on 30 June and does not have the cash to do so. It is not even clear that following the referendum creditors’ support will still be available. The IMF is certainly not impressed. The ECB has said it will maintain the current ELA for Greek banks, but will reassess the situation on an ongoing basis. Most recently, the Greek Government has announced capital controls with the closure of banks, and limits on withdrawals. But many questions remain. Does a failure to pay the IMF mean imminent Greece exit from the euro? What timeline could this all play out over? How will depositors in other periphery country banks behave? Will the Fed be happy to hike against a more fragile global backdrop? The only thing that we know for sure is that uncertainty is high, and in that environment, many markets will catch a safe haven bid”.
Peter Dragicevich, senior currency and rates strategist at CBA.
“Fears about a potential Greek exit from the Eurozone will no doubt rise given recent developments. While we think the risk of Greece exiting is higher than it was last week, we still do not think it should be viewed as a central case. The majority of Greek’s continue to favour EU membership. The latest polls published over the weekend show that around 2/3’s of Greeks think they should remain in the Euro.
Nevertheless, all eyes will remain on the upcoming 5 July referendum. Even though it is linked to proposals that are apparently no longer on the table, the 5 July referendum on ongoing austerity could be treated and viewed as a de-facto vote on the Greece’s EU membership. In our view, a successful “no vote” (i.e. a vote against further austerity) would raise the prospects of specific referendum on EU membership in the period ahead and add to market nervousness.
Conversely, should the “yes vote” prevail (i.e. in favour of austerity) this could trigger a change in Greece political landscape. Based on the most recent polling, the “yes vote” looks to be the most likely outcome. The polls show that almost 60% of Greeks think the government should back down and reach a deal with creditors. Given current Prime Minister Tsipras’ stance, a “yes vote” could make his position untenable and generate the need for fresh parliamentary elections in a relatively short space of time. A new Greek government, armed with the public’s support for austerity could then recommence negotiations with international creditors on a new assistance package.
It is worth highlighting that given Greece’s current EU assistance program legally ends on 30 June, negotiations after this date would be for a new assistance package. The hurdles to agree and pass a new program through various parliaments in the Eurozone were already higher than those needed to approve an extension of an existing program. No doubt, given recent developments, these hurdles will now be even greater”.
Richard Franulovich, chief currency strategist at Wespac.
” We expect a very strong risk averse tone to pervade global markets as soon as Asian opens for trading and throughout much of the week: equities lower (perhaps 2-4% for key markets), bond yields lower (perhaps 15-25bp for core markets) and the likes of the USD, JPY and CHF to be very well supported (perhaps +1 to 2% against G10 peers). EUR/USD will likely trade down to 1.10 early this week though with higher yielding and EM currencies likely to fall as well EUR may “perversely” rise on some crosses”.