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Greferendum moving to Grexit

In rolling coverage of the vote, ‘NO’ has won approximately 61.3% of the vote. The situation is now the most über-bearish scenario of the four possible scenarios that could have played out.

Grexit
Source: Bloomberg

The country will now head to Brussels with a ‘mandate’ saying they want to stay in the Eurozone but with completely new deal and debt relief.

 

The knowns:

Greece has voted to reject the current credit program.

The ‘right-of-centre’ opposition leader and former PM Antonius Samaras has resigned his post.

Prime Minster Alexis Tsipras’ key points of the vote:

  • A ‘NO’ vote is not a vote for Grexit
  • ‘This time debt relief will be on the table’
  • ‘The mandate you have given me is not a mandate against Europe’
  • ‘Even in the most difficult circumstances, democracy can't be blackmailed – it is a dominant value and the way forward’

Opinion polls within Greece have been significantly in favour of maintaining EMU membership – the unknown is if Europe will want to keep them.

Europe’s response has also been interesting. Although France and Germany have been taking the brunt of Greece and the media’s barbs for the situation, it is the smaller nations that are pulling the harder line.

Here is Maltese Prime Minister Joseph Muscat: ‘‘…unequivocal referendum result carries consequences not only for Greece, but also for the people in creditor countries and for the whole European project… The Greek government has sought to protect its people’s interest using the method it deemed best. People in creditor countries now expect their representatives to protect their interest and the European interest too.”

Germany and France to will meet in Paris today as Merkel heads to the French capital to discuss the way forward with Hollande. The way forward is now so crowded it is tough to see how that will possible.

 

The unknowns

Expectations of the ‘Grexit’ have risen to 80%. Some cannot see how Greece can remain at all.

The issue now is how the ECB proceeds with the Emergency Liquidity Assistance (ELA) packages. Greek banks are likely to be insolvent. One would assume the current emergency ‘bank holiday’ program will remain – however, it is hard to see further assistance after this. The ECB cannot support Greek banks forever. The emergency meeting in Frankfurt will be key today.

The next question and the biggest unknown is whether Europe and Greece can actually have meaningful negotiations? The language used is not supportive of positive negotiations. ‘Blackmail’; ‘Terrorising’; ‘Ransom’ - rhetoric is a politician’s best friend, but it doesn’t help markets or debt renegotiations.

What are the conditions under which negotiations can even occur? What package will be put to Greece? What will Greece put to Europe?

European nations will also have to vote on how to proceed. Germany is one that cannot proceed without a vote from the people – another risk event.

In five days, Greece has a commercial debt repayment of €2.0 billion in treasury bills (10 July). Missing this payment is a clear default.

The IMF has also come out and said that Greece needs debt relief now – and a minimum of €80 billion would be need to help Greece make it through the current situation.

Greece is a rolling situation now – news will move markets as it comes in.

 

China throws the kitchen sink

China has suspended all new IPO listings.

US$19 billion have been invested into a suitability fund headed by CITIC.

All short selling has been banned.

State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results.

The slide in Shanghai over the past 15 days has it in a bear market and the market is off 26% overall.

If China does not find support today, the disorder could be monstrous.

 

Ahead of the Australian open

With Greece being a rolling scenario and China reacting so strongly over the weekend, the futures markets for the ASX are completely stale. Our opening calls are conflicted by the two scenarios – one is a clear global drag the other should be a possible positive. However, how China reacts is unknown.

The key for Australia? The AUD. It’s at its lowest level since April 2009 while the JPY is up between 0.7% to 2% (versus the EUR) over the G10 currencies. Risk-off is clearly where investors are heading.

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