The Grexit drama plot developed a twist when the Greek government turned on its antagonists and declared “This. Is. Sparta!” over the weekend. The EU now stands to witness the first actual fracture at its periphery, and it no longer holds the whip. Strategic alliances with other non-EU countries in the region become a reality, and the dwindling liquidity the ECB has been so desperate to protect, for the first time, makes a vortex near the open plug hole. China cuts interest rates in response to a stock market crash and the US Dollar strengthens as the Euro briefly sells off this Monday morning.
In the Calendar This Week
This week features the usual slew of end-of-quarter Home Sales and Consumer reports, as well as Manufacturing PMI figures out of China, on Tuesday, and the US on Wednesday. US Employment and Unemployment data will be released on Wednesday and Thursday, although market participants and commentators have long ago written US employment figures off as too “cooked” to have any meaning.
The highlight of the week is definitely the Greek Referendum to be held on Sunday 5 July.
In The News This Week
Greece Credit Default By Referendum
In an announcement made during the small hours of Saturday morning via national television broadcast, Greek Prime Minister Alexis Tsipras told his nation:
Our partners unfortunately resorted to a proposal-ultimatum to the Greek people, I call on the Greek people to rule on the blackmailing ultimatum asking us to accept a strict and humiliating austerity without end and without prospect.
Members of his Syriza party previously supported voluntary default and ministers, including the Chief of Defense, urged Greek citizens to vote “No” in the July 5 referendum. Deputy Foreign Minister Euclid Tsakalotos told international media that the Greek government would not impose capital controls. However, Greeks awoke to long cues at ATMs on Monday and with capital controls imposed across the nation.
According to the Guardian newspaper, an official decree – entitled “Bank Holiday Break” – was signed by Tsipras and president Prokopis Pavlopoulos early Monday morning after the European Central bank reportedly froze emergency liquidity funds to the nation’s banks. (Some agencies report a funding “freeze” while an ECB press release implies ongoing Emergency Liquidity Assitance (ELA) – it would appear that the level of ELA has been frozen). The decree imposes capital controls whereby banks will remain closed for business until after the 5 July referendum and ATM cash withdrawals are limited to €60.
As expected, markets reacted negatively to the prospect of Greek default and an exit from the EU.
EUR/USD 1-Hour Candle Chart
The EUR/USD gapped lower despite an emergency weekend “Close Only” facility provided by forex brokers. The situation now conforms to Morgan Stanley’s worst case “Scenario 3 in the Greek playbook” and the expectation is that the Euro will continue weakening across the board.
… a new chapter of uncertainty has opened up with the Greek crisis. More clarity on the eventual outcome is unlikely until the following Sunday and likely beyond.
– Deutche Bank
A selection of major indexes and and the Gold price shows stocks selling off to support while both the Dollar and Gold strengthened on the news out of Greece.
Also In The News
Following last week’s 7% crash of the Shanghai Composite Index, the Peoples’ Bank Of China cut interest rates on Saturday. Rates were cut by 0.25%, to 4.85% on bank loans, and to 2% on bank deposits.
Shanghai Composite Index 1-Day Candle Chart
The Shanghai Composite Index had rallied in stupendous fashion, seeing China Mainland stock prices double within the last 12 months.
AUD/USD 1-Hour Candle Chart
The Australian dollar gapped lower in reaction to the Greek news at market open, and then, apparently, jumped for joy to almost 0.77 in exuberant gap-filling trade. At the time of writing, the downtrend has resumed – most likely as a result of US dollar strength on the back of a weakening Euro.
- Capital controls should remain in force in Greece for at least a week (until the referendum) but may stay in place for months.
- The Euro is expected to weaken across the board.
- The Euro’s major forex cross, the US Dollar, can be expected to strengthen as a result.
- Expect another surprise twist in the plot when Russia enters stage-left and negotiates a strategic oil facility lease with cash-strapped Greece, while also throwing down the gauntlet to NATO interests in the region.
While this crisis commands media attention, it represents an opportune moment for global economic policy amendments to be implemented via stealth and by excuse. CCN.LA will, as always, keep an ear to the ground and read between the lines to bring readers uncluttered and independent news.
This analysis is provided by xbt.social.
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Charts from TradingView, image from Shutterstock.