Wall Street Braces for Wild Ride After Greek Vote
Paul Davidson,
USA TODAY 2:03 a.m. EDT
July 6, 2015
Financial markets are braced for more turbulence this week after Greek voters on Sunday resoundingly rejected the bailout terms demanded by Athens' creditors, increasing the likelihood that the debt-wracked country will exit the euro.
"I think the equity market sells off" Monday, said Daniel Morris, global investment strategist for financial services firm TIAA-CREF.
Asian markets dropped sharply Monday. Japan's Nikkei 225 dropped more than 300 points, losing more than 1.5% at the start of trading. Hong Kong's Hang Seng index fell 3.2%, by the afternoon.
The Shanghai Composite shot up nearly 6% when the market opened, but after retreated to 2.2% by midday. The surge was powered by a pledge from the country's largest investment firms to spend billions on market stabilization, as well as a promise of increased for market investments from China's central bank.
Sunday night, futures markets pointed to a slide on Wall Street Monday of close to 1.5% in the benchmark Standard & Poor's 500 index.
Many analysts expected a closer contest and a victory by bailout supporters, Morris said, so "the vote was worse than people expected."
That, he said, likely means Greece's left-wing government will be emboldened by the results and less willing to accept any harsh conditions put forth by its creditors — the International Monetary Fund, the European Central Bank and the European Commission.
Last Monday, after Greek Prime Minister Alexis Tsipras announced the referendum, European stock markets fell about 4% and the S&P 500 in the U.S. dropped 2%. David Joy, chief market strategist for Ameriprise Financial, said declines on Monday could be bigger as fear and uncertainty grip markets, driving investments to safe assets such as U.S. Treasuries.
That would push up bond prices, and drive down yields, not just in the U.S. but also in financially sound euro zone countries such as Germany, a positive development for those economies. Morris estimates yields on U.S. Treasuries could fall as much as 15 basis points. Meanwhile, bond yields in struggling euro zone countries such as Italy, Spain and Portugal will likely rise.
The prospect of a Greek exit from the euro ignites fears that those cash-strapped eurozone countries could follow. Analysts said that's likely to further hobble the euro Monday and strengthen the dollar, potentially crimping the exports and earnings of U.S. multinationals that draw a big share of their revenue from the eurozone. Futures trading had the euro off 1% vs. the dollar Sunday night.
In the short term, the ECB should continue to provide emergency funding to Greek banks but it will probably not increase the cap, economist Diego Iscaro of IHS Global Insight predicts. That, he said, raises the odds that Greek banks will run out of cash within days and will not reopen as scheduled July 7.
Yet all three analysts expect Greece and its creditors to resume negotiations in coming days as Athens seeks fresh bailout money. Despite the current turmoil, Morris said he believes an agreement eventually will be reached that allows Greece to get some debt relief and stay in the euro.
As a result, the expected drop in stock prices this week "is essentially a buying opportunity," he said.
Joy, however, said he doesn't think stocks will bounce back quickly, as they did last week, noting that negotiations could drag on for weeks or months. Still, he said he doesn't believe the effect of the impasse on U.S. stocks or the dollar will be enough to keep the Federal Reserve from raising interest rates from near zero levels in September.
Contributing: The Associated Press
USA TODAY 2:03 a.m. EDT
July 6, 2015
Financial markets are braced for more turbulence this week after Greek voters on Sunday resoundingly rejected the bailout terms demanded by Athens' creditors, increasing the likelihood that the debt-wracked country will exit the euro.
"I think the equity market sells off" Monday, said Daniel Morris, global investment strategist for financial services firm TIAA-CREF.
Asian markets dropped sharply Monday. Japan's Nikkei 225 dropped more than 300 points, losing more than 1.5% at the start of trading. Hong Kong's Hang Seng index fell 3.2%, by the afternoon.
The Shanghai Composite shot up nearly 6% when the market opened, but after retreated to 2.2% by midday. The surge was powered by a pledge from the country's largest investment firms to spend billions on market stabilization, as well as a promise of increased for market investments from China's central bank.
Sunday night, futures markets pointed to a slide on Wall Street Monday of close to 1.5% in the benchmark Standard & Poor's 500 index.
Many analysts expected a closer contest and a victory by bailout supporters, Morris said, so "the vote was worse than people expected."
That, he said, likely means Greece's left-wing government will be emboldened by the results and less willing to accept any harsh conditions put forth by its creditors — the International Monetary Fund, the European Central Bank and the European Commission.
Last Monday, after Greek Prime Minister Alexis Tsipras announced the referendum, European stock markets fell about 4% and the S&P 500 in the U.S. dropped 2%. David Joy, chief market strategist for Ameriprise Financial, said declines on Monday could be bigger as fear and uncertainty grip markets, driving investments to safe assets such as U.S. Treasuries.
That would push up bond prices, and drive down yields, not just in the U.S. but also in financially sound euro zone countries such as Germany, a positive development for those economies. Morris estimates yields on U.S. Treasuries could fall as much as 15 basis points. Meanwhile, bond yields in struggling euro zone countries such as Italy, Spain and Portugal will likely rise.
The prospect of a Greek exit from the euro ignites fears that those cash-strapped eurozone countries could follow. Analysts said that's likely to further hobble the euro Monday and strengthen the dollar, potentially crimping the exports and earnings of U.S. multinationals that draw a big share of their revenue from the eurozone. Futures trading had the euro off 1% vs. the dollar Sunday night.
In the short term, the ECB should continue to provide emergency funding to Greek banks but it will probably not increase the cap, economist Diego Iscaro of IHS Global Insight predicts. That, he said, raises the odds that Greek banks will run out of cash within days and will not reopen as scheduled July 7.
Yet all three analysts expect Greece and its creditors to resume negotiations in coming days as Athens seeks fresh bailout money. Despite the current turmoil, Morris said he believes an agreement eventually will be reached that allows Greece to get some debt relief and stay in the euro.
As a result, the expected drop in stock prices this week "is essentially a buying opportunity," he said.
Joy, however, said he doesn't think stocks will bounce back quickly, as they did last week, noting that negotiations could drag on for weeks or months. Still, he said he doesn't believe the effect of the impasse on U.S. stocks or the dollar will be enough to keep the Federal Reserve from raising interest rates from near zero levels in September.
Contributing: The Associated Press
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