Greek Crisis Shakes Global Markets
European stocks and bonds, as well as the euro, fall as Greece shuts banks and implements capital controls
Photo: Protesters carrying a burned European Union flag during an antiausterity demonstration in Thessaloniki, Greece, on Sunday. Photo: Bloomberg News
By
Tommy Stubbington and Josie Cox
Updated June 29, 2015 8:08 a.m. ET
A sudden deterioration in Greece’s debt crisis shook global markets Monday.
Stocks around the world tumbled after a weekend breakdown in negotiations between the Greek government and its creditors left the country teetering on the brink of default and pushed it closer than ever to an exit from the eurozone.
Still, there was little sign of outright panic in the market. European stocks recovered slightly from early losses. Bonds in Italy, Spain and Portugal—highly indebted countries seen as vulnerable to the Greek crisis—also pared losses after initial sharp falls.
Greece has shut down its banking system for six days and imposed capital controls after the European Central Bank opted not to expand a lifeline of emergency funds. Charles Forelle assesses whether a bailout deal is still possible.
The Stoxx Europe 600 was down 2.4% midway through the session, wiping out most of the previous week’s gains on optimism that a deal would be done. Greece’s stock market will remain closed this week along with the country’s banks.
Greek bonds plummeted, pushing the two-year yield more than 12 percentage points higher to 33%. Yields rise as prices fall.
“The sudden turn of events over the weekend has pushed both the future of Greece and the eurozone into uncharted waters,” said Salman Ahmed, a portfolio manager at Lombard Odier Investment Management.
The selling in Europe came on the heels of sharper falls in Asia.
A move by China’s central bank over the weekend to cut interest rates failed to give a sustained lift to China’s main stock market, with the Shanghai Composite Index closing down 3.3%. The intensifying Greek crisis further undermined confidence in a market that has been under pressure over the past two weeks after a yearlong debt-fueled rally.
In the U.S., stock futures tumbled, with the S&P 500 on course for a 1.2% opening loss. Changes in futures don’t necessarily reflect market moves after the opening bell.
Eurozone finance ministers rejected a Greek request for an extension to the country’s bailout over the weekend, while Greece’s government called a referendum on whether to accept austerity measures demanded by the country’s creditors in exchange for further aid. The government ordered Greek banks to stay closed for six days, and the country’s central bank imposed controls to stop a flood of money from exiting the country.
As of Tuesday, Athens will be cut loose from international rescue loans for the first time in more than five years and is expected to default on a €1.55 billion payment to the International Monetary Fund.
U.S. Treasurys and German government bonds surged as investors scrambled for safe-harbor assets. Germany’s 10-year bond yield fell 0.12 percentage point to 0.79%.
Spain’s 10-year yield was 0.17 percentage point higher at 2.28%. The Italian 10-year bond yield rose by 0.18 percentage point to 2.33%. In Portugal, the 10-year yield was 0.26 percentage point higher at 2.95%.
“If we get a Greek exit you have to say the potential for other countries to exit the eurozone is suddenly no longer negligible. That would need to be reflected in bond prices,” said Mark Dowding, co-head of investment-grade fixed income at BlueBay Asset Management.
The euro tumbled to more than a three-week low against the U.S. dollar during the Asian trading session, before rebounding slightly in European trade. It was 0.5% lower at $1.1111 on the day midmorning in Europe, according to FactSet.
Gold, another asset considered a haven, was up 0.3% at $1,176.80 a troy ounce. Brent crude oil was 2.8% lower at $61.53 per barrel.
A number of investors said the selloff was a good opportunity to buy, with the turmoil in Greece unlikely to hold back a broader economic recovery in Europe, and the European Central Bank ready to contain the spillover into the region’s debt markets.
“The market reaction so far I would see as quite benign. Last week [European stocks] had a very good week and we are reversing that,” said Ewout van Schaick, who oversees more than €20 billion ($22.6 billion) of multiasset strategies at NN Investment Partners.
There were signs that bargain hunters were already stepping in on Monday, as stocks and bonds in Europe picked up from their early lows.
“Over our six-month investment horizon ECB action should mitigate contagion effects to other markets or economies in case of a Greek exit,” said Mark Haefele, chief investment officer at UBS Wealth Management.
“Investors should see a selloff in European equities around this referendum as a buying opportunity.”
Write to Tommy Stubbington at tommy.stubbington@wsj.com and Josie Cox at josie.cox@wsj.com
