The collective IQ of Greece was polled last night. The result was it’s significantly lower than anticipated. Given there is so much at stake, rational beings were hoping the famously passionate Mediterraneans would set aside emotion for logic. Instead, it went the other way. The predicted close contest in a Referendum held to determine whether Greece stays in the Eurozone became a rout with the “no” voter garnering 61%. And, typically, the party started as soon as the news started working through. There’s going to be an almighty hangover. Not just for the Greeks. The flight to safe assets saw an immediate adjustment in the prices of everything from the SA Rand (down 13c) to the oil price (below $60). – Alec Hogg
By Emma O’Brien and Benjamin Purvis
(Bloomberg) – Greek voters’ rejection of austerity coursed through financial markets Monday, as Asian stocks and U.S. index futures slipped with the euro and crude oil amid flight to the safest assets. Chinese index futures jumped after the country stepped up efforts to arrest an equity selloff.
The MSCI Asia Pacific Index lost 1 percent by 10:10 a.m. in Tokyo, with Japanese and Korean gauges falling more than 1 percent. Standard & Poor’s 500 Index futures slid 1.2 percent. The euro was down 0.6 percent versus the dollar, paring an earlier drop of as much as 1.3 percent as high-yielding currencies declined while the yen advanced. Treasuries and Asian bonds jumped with credit risk. U.S. oil tumbled 3 percent. FTSE China A50 Index futures rallied 6.3 percent.
Greeks defied opinion polls predicting a tight race, with more than 60 percent voting to reject austerity measures required to win another bailout package. The result means Greece’s exit from the currency union is now the base-case scenario, JPMorgan Chase & Co. said, with European leaders calling for a summit. China suspended initial public offerings and brokerages pledged to buy shares in weekend measures aimed at halting the steepest plunge in local stocks since 1992.
“It’s definitely risk off, markets don’t like uncertainty,” Kumar Palghat, managing director of Kapstream Capital Ltd., which oversees the equivalent of about $6.9 billion in Sydney, said in a Bloomberg TV interview. “The question from the market is, is this going to continue or are they going to come up with a solution? China is more important to Asia than Greece is, but remember we live in a globalized world, so what happens in Greece affects other countries and other regions as well.”
Polls Wrong
With all of the vote counted, support for the “no” camp was at 61 percent, while 39 percent voted “yes” to the demands, according results on the Greek Interior Ministry website. A poll commissioned by Bloomberg had 43 percent voting “no” and 42.5 percent intending to accept creditors’ conditions. The survey had a three percentage-point margin of error.
The uncertainty thrown up by Greece refusing to bow down to its creditors saw investors gravitate to haven assets, with yields on 10-year Treasuries slipping nine basis points, or 0.09 percentage point, to 2.29 percent in their first day of trading since Thursday. American markets resume Monday following the Fourth-of-July holiday.
Similar maturity Japanese debt yielded 0.46 percent, down two basis points, while rates on Australian bonds due in a decade declined 14 basis points to 2.93 percent, set for their lowest close since June 19. A gauge of credit risk across Asia rose to an almost six-month high as the referendum result became clear.
‘Big Surprise’
“This is a big surprise, the market definitely expected it was going to be close,” Clem Miller, an investment strategist at Wilmington Trust, which manages $20 billion, said by phone from Baltimore. “We’re going to see a lot of volatility. Everything’s going to get hit with the exception of safe-haven bonds.”
German debt may surge as investors seek out haven assets following the vote, according to ING Groep NV. The extent of the rally “depends on the rhetoric coming from the creditors,” Padhraic Garvey, ING’s head of global rates strategy, said before the referendum. “If the creditors talk really tough, bonds could rally significantly and it’s risk off for at least a number of days.”
Ten-year bund yields finished at 0.79 percent in London Friday, down from 0.92 percent on June 26.
Kuroda Speaks
The yen, also regarded as a haven among currencies, added 0.2 percent to 122.50 per dollar and gained 0.9 percent to 135.22 versus the euro. Japan’s currency trimmed earlier gains of as much as 0.9 percent against the greenback as central bank chief Haruhiko Kuroda said the country had limited connections to Greece’s economy.
Japan’s Topix index lost 1.3 percent, snapping a four-day advance, while the Nikkei 225 Stock Average fell 1.4 percent. A gauge of Nikkei 225 volatility gained 2.4 percent. The Kospi index in Seoul declined 1 percent as Australia’s S&P/ASX 200 Index sank 1.5 percent, led by energy stocks and utilities.
The euro weakened to $1.1043 after earlier touching a one- week low of $1.0970. It could slip toward $1.08 initially, before targeting a 12-year low of $1.0458 last reached March 16, said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney.
“The risks the Greek referendum pose to the very heart of the European Monetary Union have yet to be fully understood,” Rennie said by phone. “Financial markets will be watching very closely for reactions from Hollande, Merkel, Draghi, as well as from the Greek government and the liquidity situation in Greek banks.”
Ringgit Sinks
Elsewhere in currency markets, the Malaysian ringgit slid as much as 0.9 percent to 3.8142 per dollar, its weakest level since a dollar peg was scrapped in 2005. Currencies from South Africa to Turkey and Singapore lost at least 0.4 percent.
While Greece accounts for less than 2 percent of the euro zone’s output, an exit would set a precedent for other nations that membership is reversible. The country’s immediate fate lies with the European Central Bank, which may take its cues from European Union leaders as to whether it can keep emergency loans flowing to Greece without the prospect of a bailout package. The ECB is set to meet Monday.
The Greek government’s decision to call a snap plebiscite on creditors’ demands spurred a deepening in the nation’s financial crisis, with capital controls imposed and the country unable to make a scheduled payment to the International Monetary Fund last week. Finance Minister Yanis Varoufakis had said he would quit if the country voted to endorse the austerity plan.
ECB Factor
“Most imminently, Greek bank ELA liquidity is likely to be fully exhausted over the next few days, leading to an exhaustion of ATM cash reserves as well as an inability to finance imported goods via outgoing payments,” George Saravelos, co-head of currency research at Deutsche Bank AG in London, wrote in an e- mail, referring to the ECB’s Emergency Liquidity Assistance program.
The Australian dollar breached 75 U.S. cents for the first time since 2009. The retreat is significant because central bank chief Glenn Stevens said in December he preferred the currency trade at about 75 cents to assist the economy after the collapse of a mining investment boom. Australia counts China among its biggest trading partners.
China Moves
In China, 28 companies halted their IPOs, according to filings to the nation’s two exchanges Saturday. A group of 21 brokerages led by Citic Securities Co. will invest at least 120 billion yuan ($19.3 billion) in a stock-market fund, the Securities Association of China said the same day. Executives from 25 mutual funds vowed to buy shares and hold them for at least a year, according to an industry group association.
The weekend announcements come as the government battles to restore faith among the nation’s 90 million individual investors after a slew of measures by regulators, including a pledge to investigate market manipulation, failed to stem declines.
The Shanghai Composite Index, one of the world’s best- performing equity gauges the past six months, has tumbled 29 percent since mid-June, erasing about $3.2 trillion of value from the market on concern leveraged traders are liquidating bets after valuations exceeded levels seen during China’s stock- market bubble of 2007.
The yuan was little changed in early offshore trading, losing less than 0.1 percent to 6.2074 per dollar.
West Texas Intermediate crude slid to $55.21 a barrel, headed for its lowest close since April 14 as the bout of Greek- fueled risk aversion saw oil shunned. Brent crude dropped 0.8 percent to $59.82 a barrel, trading below $60 for the first time since mid April.
Copper declined 0.7 percent to $5,718 a metric ton in London, while nickel sank 1.5 percent to $11,820 per metric ton, extending last week’s 3.6 percent retreat. China is the world’s biggest consumer of industrial metals.
