Markets take Greek ‘No’ in their stride

Financial markets barely shuddered after Greek voters rejected austerity demands, with the euro slipping less than 0.5 percent and US stocks erasing losses, in a sign investors see the crisis there as contained for now.

The Standard and Poor’s 500 Index was little changed mid-morning in New York, while the Stoxx Europe 600 Index lost 0.8 per cent, up on an earlier decline of 1.6 per cent.

The euro trimmed a slide of more than 1 per cent to trade at $1.1065.

US treasury 10-year yields fell five basis points to 2.36 per cent.

Shanghai shares rose amid intensifying efforts to arrest a $3.2 trillion selloff. US oil sank 4.8 per cent to $54.23 a barrel.

While investors sold riskier assets after Greeks voted in a referendum on Sunday to reject their creditors’ austerity terms for aid, the declines were muted compared with a week ago.

The European Central Bank is due to evaluate its next move on Monday as German chancellor Angela Merkel and French president Francois Hollande hold talks in Paris before euro-area leaders meet on Tuesday.

“Our opinion has been and remains at this point that Greece is more noise than anything else,” said Walter Todd, who oversees about $1 billion as a chief investment officer for Greenwood Capital. “I think it’s going to be hard to get any real traction until we get some type of clarity. You can’t escape the noise created by this situation in Greece.”

The euro weakened versus 14 of its 16 major peers. The yield on Spain’s 10-year bond rose 12 basis points to 2.33 per cent and Italy’s climbed 11 basis points to 2.36 per cent. Both yields jumped more than 20 basis points on June 29th, the first trading day after Greece announced the referendum.

“The muted reaction implies the market is not too worried about a Grexit,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “It is still early, and bigger moves may well surface in the near future, but I do not expect to see the start of another financial crisis. For now, the ECB can be happy that already the existence of support facilities seems to suffice.”

Greece ETF A US-listed exchange-traded fund tracking Greek stocks fell 5.3 per cent, while American depositary receipts of National Bank of Greece declined 8.9 per cent.

Greece’s stock exchange has been closed for the past week. Although several big banks said the risks of a Greek exit from the euro zone had risen since Sunday’s “No” vote, investors pointed to the European Central Bank’s capacity to limit financial contagion and step in if market turmoil spread.

“The market is, rightly or wrongly, taking a great deal of credence of the fact that the ECB has many more defence mechanisms in place than it did in 2011-12,” said Andrew Milligan, head of global strategy at Standard Life Investments.

“Some of the measures we’ve seen already could be seen as a subtle signal by the ECB that it is ready to step up... This point of the ECB being ready to step in is very important to the market reaction we’ve seen.”

JPMorgan strategists advised clients to cut risk exposure but added that markets would likely be higher on a three-to-six-month horizon. Some portfolio managers echoed the optimistic outlook.

“We are still positive on Europe with regards to underlying fundamentals. We are positive on earnings and sales growth and are looking for continued earnings surprises,” Bill Street, EMEA head of Investment at State Street Global Advisors, said.

“We are still positively exposed to risky assets in the euro zone and see this as a longer-term opportunity to remain invested in Europe.”

- Reuters/Bloomberg