FOX Business: The Power to Prosper
U.S. equity markets fell on Monday, a day after the Greek people voted overwhelmingly in opposition of economic reforms demanded by the nation’s eurozone creditors.
The Dow Jones Industrial Average fell 46 points, or 0.26% to 17683. The S&P 500 lost 8 points, or 0.39% to 2068, while the Nasdaq Composite shed 17 points, or 0.34% to 4991.
The focus on Wall Street remained in Greece Monday after more than 61% of voters there, in a Sunday referendum, cast a ballot against bailout demands from the nation’s European creditors that included a range of austerity measures including higher taxes and pension reforms.
While the initial reaction in U.S. equity markets was decidedly negative, sentiment turned around by midday as traders tried to gauge what might be on the horizon for Greece and its lenders.
Nick Kalivas, senior equity product strategist for Invesco PowerShares, said while the fear is that the referendum’s outcome would result in a so-called ‘grexit’ for Greece from the EU, which would potentially cause contagion and wreak havoc, traders are betting more on the odds of a deal.
“The big negative is the uncertainty. People are just not sure what’s going to happen, or how it’ll play out and that’s removing the bid more than causing people to sell,” Kalivas said. “So it’s uncertainty that’s really weighing on the market, and to some degree, keeping people distracted from focusing on earnings, M&A, and other more market-oriented drivers.”
Adding to the uncertainty, Greece’s finance minister, Yanis Varoufakis announced early Monday he will step down from his post, saying he will “wear the creditors’ loathing with pride.” A successor has not yet been formally named, however media reports indicate Euclid Tsakalotos, Greece’s deputy foreign minister, will replace Varoufakis.
In a note late Sunday, Barclays economics team said in light of the referendum results, and failure to negotiate a deal with the EU up to this point, Greece’s exit from the eurozone is the “most likely” scenario.
“Agreeing on a programme with the current Greek government will be extremely difficult for EA leaders, given the Greek rejection of the last deal offered and will be a difficult sell at home,” the note said.
The European Central Bank’s governing council will meet Monday to discuss emergency lending options for Greece. In the meantime, German Chancellor Angela Merkel and French president Francois Hollande were set to meet in Paris on Monday, with a meeting of eurozone leaders planned for Tuesday in Brussels.
At Tuesday’s meeting, where eurozone leaders are expecting Greece to come to the table with suggestions for how to move forward, Kalivas said there are three most likely outcomes: EU will provide liquidity, the EU will provide liquidity with a bigger haircut on the debtor, or the group won’t provide any emergency aid at all.
“That’s the million-dollar question here,” he said. “My guess is since there’s a meeting tomorrow; they might throw a lifeline at Greece in good faith to keep things going. But it probably won’t be significant enough to change the potential outocome down the road – the next round of support will either be more aggressive with the status quo, or they just back out and let chaos reign in the Greek financial system.”
For now, Windhaven Investment Management Chief Investment Strategist Dr. Christian Menegatti said for the time being, Greece is “stuck” in the eurozone with a few more rounds of negotiating to play.
“They can’t exit because there are no provisions in the treaty, even if they’re forced to issue IOUs [on pension payments] those will be instruments, not currency. They’ll go back to the negotiating table,” he noted. “However, the longer banks are closed, and the system is illiquid, the higher risk they’ll be forced into making IOUs legal tender.
In the meantime, the International Monetary Fund’s Managing Director Christine Lagarde said in a statement Monday the IMF has “taken note” of the referendum’s results.
“We are monitoring the situation closely and stand ready to assist Greece if requested to do so,” she said in the statement.
Fear of uncertainty was felt across European markets on Monday. The Euro Stoxx 50, which tracks large-cap stocks in the eurozone, dropped 2.22% to 3365, the German Dax shed 1.52 % to 10890, the French CAC 40 lost 2.01% to 4711, while the UK’s FTSE 100 traded 0.76% lower to 6535.
Meanwhile, after the Shanghai Composite fell into bear-market territory last week after a recent 30% plunge, on Sunday China unveiled unprecedented steps to prevent a stock market crash. The move helped send the Shanghai Composite up 2.41% to 3775.
Elsewhere in Asia, Hong Kong’s Hang Seng dropped 3.67% to 7610, while Japan’s Nikkei shed 2.08% to 20112.
As stock markets across the globe reacted to the continuing turmoil in Greece, traders sought shelter in safe-haven assets. The yield on the benchmark 10-year U.S. Treasury note dropped 0.11 percentage points to 2.28%. Bond yields move in the opposite direction of prices.
It’s a light week for economic data in the U.S.; Monday traders digested the latest reading on service-sector growth from the Institute for Supply Management. The ISM gauge ticked higher to 56 in June from 55.7 in May. The reading, however, came in shy of expectations for a rise to 56.2. Readings above 50 indicate expansion, while those below point to contraction.
Later in the week, traders will get the latest look at consumer credit, wholesale trade, and the minutes from the Federal Reserve’s last policy meeting.
After 167 years, it’s the end of an era for most open-outcry futures trading pits in New York and Chicago as they close Monday after a decision to shutter them came in February by the world’s largest futures market operator, the CME Group (CME). The pits were once home to frenzied traders who bought and sold a range of futures contracts including cattle, corn, gold, and other commodities.
Over the weekend, Aetna (AET) agreed to buy smaller rival Humana (HUM) in a $37 billion cash-and-stock deal – the largest ever insurance tie-up.
Meanwhile, in commodities, U.S. crude oil prices tumbled 7.73% to $52.53 per barrel, the largest one-day loss for Nymex WTI futures since Feb. 4. Brent crude saw a 6.34% decline to $56.98 per barrel. Gold saw a 0.52% tick higher to $1,169 per troy ounce.
In currencies, the euro fell 0.33% against the U.S. dollar.
Follow Victoria Craig on Twitter @VictoriaCraig.
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