While you were sleeping: Greece closer to exit

Tuesday 30th June 2015

Equities dropped, while US Treasuries rose amid a safe haven search, on concern Greece is headed for default and exit from the eurozone.

Greece closed its banks and imposed capital controls, after negotiations between Greece and its international creditors imploded after Prime Minister Alexis Tsipras issued a stunning call for a July 5 referendum on the latest bailout conditions. The European Central Bank said it would “maintain the ceiling to the provision of emergency liquidity assistance to Greek banks at the level decided” last Friday.

Greece’s Athens Stocks Exchange was closed and will remain shut until at least July 6, the day after the country’s July 5 referendum.

“We finally reached the breaking point,” Michael James, a managing director of equity trading at Wedbush Securities in Los Angeles, told Bloomberg. “With so much uncertainty around a potentially negative outcome, the knee-jerk reaction will be to reduce risk assets. You have a potentially very ugly situation this week.”

Europe’s Stoxx 600 Index finished the day with a 2.7 percent drop from the previous close. The UK’s FTSE 100 Index declined 2 percent, Germany’s DAX sank 3.6 percent, and France’s CAC 40 Index slid 3.7 percent.

Wall Street moved lower too. In late trading in New York, the Dow Jones Industrial Average dropped 1.58 percent, while the Standard & Poor’s 500 Index slid 1.50 percent, and the Nasdaq Composite Index shed 1.68 percent.

Slides in shares of Visa and those of DuPont, down 2.7 percent and 2.6 percent respectively, led the drop in the Dow. All 30 stocks that make up the Dow last traded lower.

US Treasuries climbed, pushing yields on the 10 year yield note as much as 18 basis points lower. It recently traded 14 basis points lower at 2.34 percent.

"A week ago, it seemed very likely that we were close to having a resolution, and now all of a sudden we’re waking up to capital controls?" Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York, told Reuters. ”I'm not confident that today reflects all the bad news that could happen. Investors are really bumping up the odds that Greece will exit the euro."

The latest US housing data offered a brighter note. The National Association of Realtors said its pending home sales index rose 0.9 percent to 112.6 in May, the highest level more than nine years.

"The steady pace of solid job creation seen now for over a year has given the housing market a boost," Lawrence Yun, NAR chief economist, said in a statement. "It's very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive."

Investors are focused on the latest government jobs report, due Thursday to gauge the odds the Federal Reserve will raise interest rates in September, as currently is widely expected. Thursday’s report is expected to show a 230,000 increase in non-farm jobs this month, following a 280,000 gain in May. The jobless rate is expected to fall to 5.4 percent, down from 5.5 percent last month.

Indeed, Fed Bank of New York President William Dudley told the Financial Times in an interview that “if the data continue to evolve in the way they have, I think September is very much in play”.

BusinessDesk.co.nz

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