Stocks fall on Greek no vote

Stocks fell on Monday (July 6th) after Greece’s voters rejected a package of reforms designed to unlock fresh bailout funds, setting the country on a collision course with its European creditors.

Markets in Europe and Asia were roiled by the resounding victory for the Syriza government, which leaves Greece’s membership of the euro hanging in the balance.

Equities were also feeling the impact of market turmoil in China, where authorities are rolling out emergency measures to stave off a full-blown crash. Backed by the Chinese central bank via the state-backed margin finance company, brokerages and fund managers will buy large amounts of shares to prop up markets.

Overnight, Japan’s Nikkei index shed two per cent, while markets in London, Frankfurt and Paris all opened sharply lower following the referendum result.

The FTSE 100 lost around 0.4 per cent by lunch, while the DAX and CAC both shed over one per cent.

Shares in banks were among the worst affected because of fears about their exposure to Greek debt.

"So far the stock-market reaction has been negative but not disastrous," noted Laith Khalaf, senior analyst at Hargreaves Lansdown. "This suggests a fair degree of pessimism over the Greek referendum result had already been priced into markets. After all, this bolt has hardly come out of the blue."

The risk-off mood fed into commodities, particularly oil. Brent crude and US West Texas Intermediate dropped 2.5 per cent following the Greek vote to hit their lowest since mid-April.

A meeting of eurogroup finance ministers takes place Tuesday, after the European Central Bank meets later today to decide whether to extend emergency liquidity to Greek banks, which could run out of money this week unless a fresh deal is reached.

The next key date is July 20th when the Greek government must pay the ECB €3.5 billion.

Greek banks currently enjoy a €89-billion lifeline, but if the ECB decides a default on the debt is more likely it could increase the collateral requirement on this funding. For banks already short on capital, this could tip the country over the edge.

Athens may have to resort to issuing a second currency to pay pensioners and government wages even before July 20th.

Barclays analysts said emergency fund would be withdrawn by the ECB by July 20th “at the latest” adding that “the Greek central bank will eventually need to print its own currency in order to inject new liquidity and capital”.