Market Turbulence Looms as Greek Referendum Threatens Calm
Europe’s markets face a torrid start to trading on Monday after Greek Prime Minister Alexis Tsipras called for a referendum on demands international creditors made on his nation in return for financial aid.
Tsipras called the vote for July 5 -- after the scheduled expiration of Greece’s financial bailout -- and ministers including the Greek defense chief urged the country to reject it. With the nation’s membership of the euro area in jeopardy, the decision to hold a public vote may jolt investors into action after confidence had grown in euro-area markets that the aid talks would be successful.
German bunds will probably rally on haven demand, while equities are likely to decline with bonds of so-called peripheral euro-area nations, according to Beat Siegenthaler, a senior investment adviser at UBS Group AG in Zurich. The euro may be stable or even strengthen, he wrote in an e-mailed note.
“Markets will likely go into risk-aversion mode on Monday,” Siegenthaler wrote. “Until last night there had been a strong consensus that a deal would be reached over the weekend. The new situation following the Tsipras’ announcement is a much worse outcome than expected.”
Further twists in the Greek debt crisis are possible before the end of the weekend. Finance chiefs from the 19 nations that use the euro met in Brussels to discuss Greece’s predicament. And the European Central Bank may have to consider how to proceed with the emergency funds that the country’s banks rely on for survival, after cash withdrawals started draining bank ATMs in Athens.