FXStreet (Bali) – Events in Greece have escalated dramatically over the weekend, notes Richard Franulovich, FX Strategist at Westpac, adding that the latest developments substantially raise Greek tail risks, expecting a very strong risk averse tone to pervade global markets as soon as Asian opens for trading and throughout much of the week.
Key Quotes
“On Friday night Greece PM Tsipras announced plans to hold a referendum on 5 July on whether to accept austerity measures required by creditors’ in exchange for aid.”
“After an extraordinary weekend meeting the ECB has decided to freeze the level of ELA funding to Greek banks at Friday’s levels just shy of EUR89bn.”
“Combined these developments substantially raise Greek tail risks. We expect a very strong risk averse tone to pervade global markets as soon as Asian opens for trading and throughout much of the week: equities lower (perhaps 2-4% for key markets), bond yields lower (perhaps 15-25bp for core markets) and the likes of the USD, JPY and CHF to be very well supported (perhaps +1 to 2% against G10 peers). EUR/USD will likely trade down to 1.10 early this week though with higher yielding and EM currencies likely to fall as well EUR may “perversely” rise on some crosses.”
“Fear and uncertainty over the consequences of next week’s referendum will of course see Greek depositor withdrawals accelerate sharply. With ELA funding frozen at its current EUR89bn level it is very likely the Greek banking system will not have sufficient liquidity to meet these withdrawals.”
“A bank holiday and/or capital controls may be implemented before Greece opens for business on Monday and may need to be in place all week. Reports over the weekend suggest that as many as 500 of the nation’s 7000 ATMs were already drained of cash on Saturday.”
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