China & Greece Debt Opportunity?
PARIS — Global markets shuddered on Monday after Greece closed its banks amid fears that the country was headed toward default.
Stocks slumped modestly at the opening on Wall Street, after markets in Europe were buffeted by worries that the Greek debt crisis would prove contagious and Chinese investors endured another topsy-turvy session.
By midmorning, the Dow Jones industrial average was down 1 percent, the Standard & Poor’s 500 was down 1 percent, and the Nasdaq average had fallen 1.2 percent in trading in New York.
The Euro Stoxx 50 index, comprising the eurozone’s big blue chip companies, fell 3.3 percent in late afternoon trading, after being down about 5 percent at the opening. The FTSE 100 index in London was down 1.4 percent.
In Greece, banks and markets will be closed for the week, after Prime Minister Alexis Tsipras interrupted last-ditch debt negotiations early Saturday with the announcement that he was calling a referendum for July 5 on whether to accept the tough terms offered by international creditors.
Investors have been concerned by the probability that Athens will be unable to meet a 1.6 billion euro, or roughly $1.8 billion, loan repayment to the International Monetary Fund that is due on Tuesday, with uncertain consequences for Greece’s future in the eurozone and even in the European Union.
While investors were clearly concerned about the events of the weekend, there was no sign on Monday of widespread panic. Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a note that the current situation was “a tragedy for Greece,” but that it was “not a ‘black swan’ moment.”
The European Central Bank and other eurozone authorities have had four years to prepare for this moment, Mr. Schmieding wrote, and “we expect contagion control to work, by and large.”
Investor sentiment is “actually bearing up pretty well,” said Carl Weinberg, managing director of the research firm High Frequency Economics in Valhalla, N.Y. “But the real test will come on Tuesday when the I.M.F. payment comes due.”
If Greece fails to make payment, Mr. Weinberg said, the country could be declared either in arrears or in default, with such a determination taking several days. If Greece is declared in default, “a clock starts for creditors to deal with it, and just the existence of that uncertainty will be a cloud over the market, because we won’t know for a while,” he said.
“And when the big money starts to reposition itself, that’s when we’ll see the big moves,” he added.
The euro fell 0.5 percent against the dollar, to $1.1111, as investors feared that Greece’s troubles would have a spillover effect and would make European assets less attractive.
Bonds of the most exposed European governments, including Italy and Spain, fell sharply, while their yields — or interest rates, which move in the opposite direction of prices — rose. The prices of bonds sold by countries considered safe investments, like Britain, Germany and the United States, all rose.
Greek two-year bond prices plummeted, with their yields rising almost 14 percentage points to almost 34 percent, a sign that investors believe default has become increasingly likely. Comparable German bonds were trading to yield less than 1 percent.
Greece Shuts Banks to Stem Tide of Withdrawals
A woman looking through the closed shutters of a bank in Athens. The emergency measures in Greece escalated the confused and unpredictable state of the crisis.
Petros Giannakouris/Associated Press
While the Athens exchange was closed, Greek equities in the form of American depositary receipts fell sharply in premarket trading in the United States. Those equities for the National Bank of Greece, the country’s biggest lender in terms of assets, fell more than 20 percent on Monday in New York.
Greece has been struggling to find a solution to its debt troubles for years. But the speed with which its government called a referendum on the bailout terms and shut its banks appears to have caught at least some investors off guard.
“Most people’s consensus forecast was for them to muddle through with some kind of a deal,” said Kymberly Martin, the senior market strategist at the Bank of New Zealand, “so it has taken people a little bit by surprise.”
Portraits From Greece as It Endures a Crisis
In Asia, an interest-rate cut by Beijing on Saturday failed to stem the fall in Chinese stock markets beyond the first hour of trading. The Shanghai composite index closed the day 3.3 percent lower, having been down as much as 7.6 percent and after plunging more than 7 percent on Friday. In Hong Kong, the Hang Seng fell 2.7 percent.
The Tokyo benchmark Nikkei 225 stock average fell 2.9 percent, and the Australian market barometer S & P/ASX 200 fell 2.2 percent in Sydney.
The price of gold, which tends to become more popular during times of financial or political instability, climbed 0.6 percent, to $1,180.30 per ounce.
The People’s Bank of China, the country’s central bank, reduced one-year lending and deposit rates by a quarter percentage point, effective on Sunday, and reduced the reserves that some banks are required to hold, allowing them to lend more money.
The central bank had previously refrained from acting so quickly after a market downturn, so its action over the weekend was interpreted as a clear sign that the government was reluctant to see the Chinese stock markets lose their gains after doubling in the past 12 months.
“It marks a slight departure from the previous P.B.O.C. moves, because this time it looks to be directly timed as support for the equity markets,” said Erwin Sanft, the head of China strategy in Hong Kong at Macquarie Capital Securities, referring to the Chinese central bank.
Rajiv Biswas, chief economist for Asia at IHS Global Insight, said that if Greece defaulted and left the eurozone, the effects on Europe’s economy and on exporters in Asia would depend on whether European leaders could prevent financial troubles from spreading to Portugal, Spain and possibly Italy. If the damage is not contained, economic output in Asia could drop 0.3 percent next year on lower exports to Europe, Mr. Biswas said.
Ms. Martin of the Bank of New Zealand said such calculations were not at the front of investors’ minds. “I think people are still more concerned about the immediate impact, not the longer-term effects on eurozone growth,” she said.
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