Global stock markets yesterday took a battering after Greece shuttered its banks for the week and imposed limits on cash withdrawals — developments that have reinforced fears the country is heading for a debt default and a messy exit from the euro.
Investors are fretting about the uncertainty posed by the events in Greece. Although many experts say the global economy — even Europe — is in better shape to withstand a potential Greek exit from the euro, some point out that its implications are not fully clear.
Stocks fell in Asia and Europe, where Germany’s main index was down 2.5 percent and Greece’s market remained closed for the week.
Photo: Bloomberg
The CAC-40 stock index in France was down 3 percent at 4,908, while Germany’s DAX fell 2.5 percent to 11,198. The FTSE 100 index of leading British shares was 1.4 percent lower at 6,657.
The euro fell sharply, as did oil prices.
US shares fell in early trading, with all Dow stocks opening down. The S&P 500 and the NASDAQ Composite fell around 0.7 percent.
Trading was volatile, with the CBOE Volatility index spiking 16 percent to 16.27. While the so-called “fear index” remains below its historical average of 20, it is at its highest since early last month.
Greece’s crisis escalated over the weekend after Greek Prime Minister Alexis Tsipras said the country would hold a referendum on a bailout plan proposed last week by the country’s creditors.
Greece’s eurozone partners responded by refusing to extend the country’s bailout program, which expires today, and the European Central Bank (ECB) capped its emergency support.
That prompted the Greek government to announce limits on money withdrawals and transfers. Daily cash withdrawals are capped at 60 euros (US$67) per account.
“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,” IG market analyst David Madden said.
“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,” he added.
Investors are worried that should Greece leave the euro and write off its debts, which stand at more than 300 billion euros, the global economic recovery could be derailed and questions would grow over the long-term viability of the euro currency itself.
The euro itself proved resilient, recovering much of a roughly 2 percent initial fall to trade just half a percent lower at US$1.1102, well within the past month’s ranges.
It was helped by Switzerland’s National Bank confirming it had intervened to counter gains for the franc and by a fall in US Treasury yields that reflected speculation the US Federal Reserve would hold off for longer in raising interest rates if the trouble in Europe worsens.
The first markets to trade in the wake of the weekend developments were those in Asia and they set the tone. Among the main markets there, the Nikkei 225 stock average in Tokyo slid 2.9 percent to 20,109.95 while the Shanghai Composite Index fell 3.3 percent to 4,053.03 despite China’s surprise weekend interest rate cut.
Hong Kong’s Hang Seng fell 2.6 percent to 25,966.98 and Sydney’s S&P/ASX 200 was off 2.2 percent at 5,422.50.
“Developments in Greece have almost completely overshadowed the move by the People’s Bank of China to support the equity markets,’’ OANDA senior market analyst Craig Erlam said.
Additional reporting by Reuters
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