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The images of queues at ATMs in Greece are stripping traders of what little confidence they have left in the nation, and the financial earthquake that happened in the eurozone over the weekend can be felt around the world. Of all the market sell-offs we have witnessed due to Greece this one is the worst in years, and traders who thought a Greek exit wasn’t on the cards are quickly reassessing their point of view.
The hard left-wing Syriza has met its match, and the creditors have returned a swift serve to the Athens administration, which has prevented Greek banks from opening this week. The referendum that is due to take place in Greece at the weekend will be the sink or swim moment; either the Greek people fall in line with austerity or jump and go it alone.
Athens has been racking up a tab at the last chance saloon for several years, and now it’s time to settle up. The Syriza party came to power with the aim of renegotiating Greece’s bailout, but now it runs the risk of being shown the door. One could argue that the creditors are holding the country to ransom by not increasing the financial assistance to Greek banks, and therefore forcing their hand in the up and coming referendum. However, one could also argue that Athens’ government is gambling with the country’s future in the hope that the creditors will be the first to blink.
Beijing is battling to keep investor confidence high, but the latest interest rate cut wasn’t enough to prevent a bear market. Once the sentiment turns sour it is difficult to regain it, and the sea of selling overnight in the Far East couldn’t have come at a worse time now that Greece is a day from defaulting. The London-listed mining companies are holding up relatively well as China’s aggressive interest rate cutting is benefitting them in the medium term.
We are expecting the Dow Jones to open 160 points lower, at 17,785, as the fear surrounding Greece has gotten the best the of dealers. The move in US index futures is sizeable, but it pales in comparison to that of the eurozone equity markets. US traders had to keep an eye on Greece last week, but now they can’t afford to take their eye off the nation.