This morning is all about breaking news and shocking outcomes. The NO vote in Greek referendum was shocking for the market. which has pulled the markets sharply lower this morning, as investors are not certain about the future of the county. The bond yields across the board are soaring on the back of this uncertainty and investors are piling up their money in so called the safe haven. There are many questions being raised if Greece will remain the part of the Eurozone or whether its leaders will show the country the exit gate.
Panic is perfectly defined today when we look at the equity market and there is only colour across the market which is deep red. Investors are not feeling comfortable at all to buy the risky assets and the contingency issue is the first matter of concern now. This has pushed the yield of other countries which could be facing a very similar situation such as Italy and their 10 year yield has soared by nearly 14 basis points.
If Greece “NO” vote wasn’t not enough of surprise for the market, the Greek finance minister early this morning have also given his resignation this morning- a perfect game theory tactic. This gives a clear and loud message to creditors that come to the table and we have a new team of negotiators for you which will work with you to resolve the issue. This is another perfectly executed move by the game theory specialist- the ex finance minister.
Going forward this could certainly increase the hope among investors that with the new team leader the two sides will be able to resolve their problems and will form some sort of sensible solution which will not cripple the Greek economy. The Greek banking sector is starving for fresh capital and despite capital control in place, there is nothing stopping the deposit outflow. Greece needs ECB help if it wants to survive, and the ECB need to help Greece if it wants to maintain its reputation that the euro is truly irreversible currency- no matter what happens. Therefore, we do expect the ECB to maintain it ELA and there is a strong possibility that the institute could actually increase the ceiling as well.
Once the new Greek finance minister will take the control, the Greek officials will perhaps beat the same drum that they want debt relief as a part of their new negotiations and their confidence will be based on the most recent IMF comments.
Back in Asia, the sell off continues and there is still no sign of this coming to halt. Every sell off more or less comes with a government announcement which is constantly trying to calm the market, but it seems like that their efforts are not working at all and everything which they say is falling on deaf ears.
As for the U.S., the interest rate hike prospectus will certainly be pushed towards the end of this year as the Fed will surely not feel comfortable in raising the interest rate when there is turmoil taking place in Europe. Perhaps, another important mandate for the Fed will be keeping a close eye on the European turmoil situation and their own labor market could become a secondary issue. If the Fed does hike the interest rate despite the turmoil in Europe, it puts their hard work at great risk and all their hard work will be lost.