The Australian stockmarket will start blind this morning with investors uncertain about what the no vote in the Greek referendum means, and rising fears about the slide in Chinese markets and the potential damage both could cause.
First up this morning the Aussie dollar dropped below 75 US cents for the first time since 2009 and traded down to 74.50. It was around 74.75 just after 7.15 am.
The local stockmarket will start with losses larger than the 7 point fall for the ASX200, as suggested by the close to the share price futures contract on Saturday morning, our time. Remember last Monday the market sold off by a huge 2.3% on fear less serious fears than we will see this week.
The euro fell 1% in early Asian trading as well which could portend a very tough day or more on financial markets as investors await the eurozone, IMF and ECB reactions to the Greek vote.
Watch the US dollar rise – which will knock commodity prices, but gold and silver will be worth keeping an eye on to see if they prove to be stores of value in this unprecedented situation.
European shares last week suffered the largest fall since late last year in percentage terms, and the largest in points terms for two months – this week can only be as worse, at best.
On top of that there’s the monthly meeting of the Reserve Bank tomorrow, the weakening dollar, the weak iron ore price and Thursday’s jobs report in the coming week – all of which could shake local sentiment.
So tense times ahead and Greece’s situation looks to be worsening with reports this morning in European media that the Greek authorities will start seizing bank deposits later this week to help the financial system survive.
We don’t know what the European Central Bank (ECB) is going to do with its near 89 billion euros in emergency loans to Greek banks. The Greek central bank has asked the ECB for more aid and that decision will come this afternoon, Sydney time.
The ECB has let it be known that it will use everything in its powers to limit the fallout on European markets and economies – from Poland to France and Ireland.
The Bank of England is also reported to have contingency plans at the ready to help US markets.
That could be in question, requiring the plan to grab the bank deposits (like what was done in Cyprus a few years ago) by imposing a ‘haircut’ which would see all deposits above a certain amount seized and used to help recapitalise the banks.
That would be very drastic and could spark a financial crisis larger what we now have. Reuters reported yesterday that some bank machines were running short of money in Greece over the weekend, even with the daily limit of just 60 euros a day.
There are stories (not denied) that the daily cash limit will be cut to 20 euros from 60 this week
Media reports suggested that the Greek banks only had enough euros to last until the middle of this week, when additional funds would have to be found from elsewhere.
This sort of uncertainty, along with the rising concerns about Chinese markets (and we don’t know what impact the weekend’s Chinese stabilisation plan will have today – see separate story) will make for difficult trading conditions in Asian markets today.
The weekend close of the share price futures contract left the local market starting with a small loss – but that could quite easily turn into a big loss, or a big rise – depending on how the Greek vote is seen.
A No vote will cause confusion, a Yes vote will cause more confusion (what does Yes really mean) and a close vote will cause chaos.
The sliding Australian dollar is another factor (the rise in the US on Friday night sent most commodity prices lower, such as oil and gold) for local markets. The dollar closed at a six year low of 75.23 US cents early Saturday morning, a fall of 1.5% against the greenback on Friday.
And then it fell again under 75 US cents in early Asian trading and looks taking the brunt of early selling by nervy traders.
The Aussie dollar has fallen nearly 8.5% against the US dollar since mid-May, thanks to the growing belief there will be no more rate cuts here, the rising chances of a US rate rise from the Fed later in the year, and the sudden slide in Chinese markets.
The combination of the events in Greece and China’s slide will front of mind factors for tomorrow’s Reserve Bank board meeting. Don’t expect a rate cut.
European stocks racked up their worst weekly loss in months last week because of events in Greece and the uncertainty surrounding yesterday’s referendum.
The FTSE Eurofirst 300 index fell 3.5%, or 55.71 points, on the week, to 1,518.37 – its biggest weekly decline in point terms since the first week of May, according to Bloomberg.
It was the biggest fall in percentage terms since mid-December, 2014.
The Financial Times reported that “Despite this week’s performance, market strategists point out that the reaction has been relatively contained as the risks of contagion to other economies in the euro area have diminished substantially since the last Greek debt crisis.” But the referendum and its associated uncertainty makes this very different to anything seen before in the eurozone.
The All Ordinaries fell 1% on Friday in Australia to end the week on 5528 points, while the ASX200 was down 1.1% at 5538.
The losses on Friday pushed the local market just into the red for the week after Monday’s mad 2.3% slide.
The ASX200 closed down 0.14% for the week.
In commodity markets Brent crude in London for August delivery eased $US1.75 at end at $US60.32 a barrel, extending the slide since early May during which prices have fallen around 13%.
August US crude ended the week at $US55.52, down $US1.41 a barrel in thin trading because of the holiday in the US.
Brent crude fell 4.7% last week, while US counterpart US crude in New York was down 7%.
Both contracts showed the biggest drops since the week ending March 13.
With US markets closed, gold trading was limited – prices were down around 0.5%, despite a small rise in European trading as investors sought ’safe havens’ ahead of the vote in Greece.
