Europe
Greece votes ‘no’ in overwhelming rejection of bailout proposals.
Greece decisively rejected the bailout terms put forward by its international creditors. The Greek people have voted an overwhelming ‘No’, supporting the position of leftist premier Alexis Tsipras. With over 90 percent of the ballots counted, ‘No’ was ahead with around 61 percent of the votes, compared to approximately 39 percent for the ‘Yes’ vote.
The country’s banks have been closed for the past week with the government putting in capital controls to try and prevent a run on the banks that have already seen massive outflows.The Greek government believe they can soften austerity and still stay In the Eurozone. Greece’s international creditors stated before the vote that a ‘no’ vote would mean a ‘Grexit’ from the Eurozone block. Perhaps there will be reconciliation and a deal will be agreed but where this story goes next is dramatic and fascinating with high economic stakes at play.
European markets, however, have very much taken the news it their stride with equity markets having already fallen steadily over the last couple of weeks. Normally in times of market turmoil equities fall sharply and investors resort to safety and buy bonds (prices up /yields down). Today, the day after the vote, European equity markets are only down between 0.5 and 1.5 %. Bond yields are only marginally lower. The Euro currency has weakened but again a minor move. ‘Grexit’ is an important market story but, as often happens, when a story goes on for long enough it stops being fresh news and marker reaction can be muted.
US
Last week saw the release of the most important economic indicator on the globe; US non-farm payrolls (non-farm means excluding the farming industry i.e. how many people joined US industry payroll). There were 223,000 new jobs created last month which was slightly lower than expectations. Markets like a weak payroll number as this means there is less chance of the US Federal reserve raising interest rates if the economy is not expanding strongly. So on the slightly weaker than expected payroll number US equity markets rallied a little and the dollar fell slightly.
Asia
The big story is China where shares continue to fall dramatically.The Shanghai stock market is down nearly 30% from its early June peak wiping USD 1.4 Trillion off the value of companies listed. Remember, however, that the market had more than doubled over the past year. What happens in China is important with the country representing the second largest economy in the world and the continued melt-down in the market is unsettling for global investors already digesting the mayhem in Europe.
Equities
S&P 500: 2080
Nasdaq: 5010
Bonds – 10 Year Government Yields
US 2.38%
EU 0.80%
GB 2.00%
Foreign Exchange
USD/EUR 1.1050 (1 euro buys 1.1050 dollars)
GBP/USD 1.5600 (1 pound buys 1.5600 dollars)
Commodities
OIL: Brent: 61.00 (dollars per barrel)
GOLD: 1170 (dollars per ounce)
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Regards
Paul McCormick
