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Equities dropped, while US Treasuries rose amid a safe-haven search, on concern Greece is headed for default and exit from the euro zone.
Greece closed its banks and imposed capital controls, after negotiations between Greece and its international creditors imploded after Prime Minister Alexis Tsipras issued a stunning call for a July 5 referendum on the latest bailout conditions. The European Central Bank said it would “maintain the ceiling to the provision of emergency liquidity assistance to Greek banks at the level decided” last Friday.
Greece’s Athens Stocks Exchange was closed and will remain shut until at least July 6, the day after the country’s July 5 referendum.
“We finally reached the breaking point,” Michael James, a managing director of equity trading at Wedbush Securities in Los Angeles, told Bloomberg. “With so much uncertainty around a potentially negative outcome, the knee-jerk reaction will be to reduce risk assets. You have a potentially very ugly situation this week.”
Europe’s Stoxx 600 Index finished the day with a 2.7 percent drop from the previous close. The UK’s FTSE 100 Index declined 2 percent, Germany’s DAX sank 3.6 percent, and France’s CAC 40 Index slid 3.7 percent.
Wall Street moved lower too. In late trading in New York, the Dow Jones Industrial Average dropped 1.58 percent, while the Standard & Poor’s 500 Index slid 1.50 percent, and the Nasdaq Composite Index shed 1.68 percent.
Slides in shares of Visa and those of DuPont, down 2.7 percent and 2.6 percent respectively, led the drop in the Dow. All 30 stocks that make up the Dow last traded lower.
US Treasuries climbed, pushing yields on the 10-year yield note as much as 18 basis points lower. It recently traded 14 basis points lower at 2.34 percent.
“A week ago, it seemed very likely that we were close to having a resolution, and now all of a sudden we’re waking up to capital controls?” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York, told Reuters. ”I’m not confident that today reflects all the bad news that could happen. Investors are really bumping up the odds that Greece will exit the euro.”
The latest US housing data offered a brighter note. The National Association of Realtors said its pending home sales index rose 0.9 percent to 112.6 in May, the highest level more than nine years.
“The steady pace of solid job creation seen now for over a year has given the housing market a boost,” Lawrence Yun, NAR chief economist, said in a statement. “It’s very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive.”
Investors are focused on the latest government jobs report, due Thursday to gauge the odds the Federal Reserve will raise interest rates in September, as currently is widely expected. Thursday’s report is expected to show a 230,000 increase in non-farm jobs this month, following a 280,000 gain in May. The jobless rate is expected to fall to 5.4 percent, down from 5.5 percent last month.
Indeed, Fed Bank of New York President William Dudley told the Financial Times in an interview that “if the data continue to evolve in the way they have, I think September is very much in play”.
Yesterday – NZ shares join global selloff by investors rattled by Greek debt impasse
New Zealand shares fell, pushing the benchmark index to a five-month low, as the local bourse joined a global sell-off as talks to resolve the Greek debt crisis failed over the weekend. Pacific Edge, Xero and Air New Zealand led a broad-based decline.
The S&P/NZX 50 Index fell 49.63 points, or 0.9 percent, to 5705.81. Within the index, 42 stocks fell, five rose and two were unchanged. Turnover was $91.5 million.
Japan’s Nikkei 225 Index, Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 Index all shed more than 2 percent in Monday trading, as Asia became the first region to react to the weekend’s failed rescue talks. Greek PM Tsipras declared a bank holiday and capital controls on withdrawals, ending a run on the country’s lenders. He failed to win creditor support for enough time to hold a referendum.
“We don’t know if there will be a last-minute reprieve – people were ever-hopeful” said Rickey Ward, New Zealand equities manager at JBWere New Zealand. “But it is becoming increasingly there will be pain whatever the outcome.”
Markets dislike uncertainty and the size of the selloff in equity markets “is a reflection also that markets are trading on historically high premiums and not priced for any disappointments,” Ward said.
Affected Stocks:
Xero, the cloud-based accounting software company, dropped about 4 percent to $18.05, the lowest level since late February. Pacific Edge, which markets a test for bladder cancer, declined 3.2 percent to 61 cents. Metlifecare, the retirement village operator, fell 3.2 percent to $4.60.
Genesis Energy fell 0.6 percent to $1.74. The country’s biggest energy retailer said today it will permanently retire a coal/gas fired unit at the Huntly Power Station which has been in storage as renewable and thermal generation provide more than enough electricity to meet customer demand.
Among the other energy companies, MightyRiverPower gained 1.9 percent to $2.69 and Meridian Energy rose 2.9 percent to $2.165.
JBWere’s Ward said companies with guaranteed local income in New Zealand, a “defensive-type” market, may benefit as investors flee riskier assets.
Skellerup Holdings, which makes rubber goods and equipment for the dairy industry, rose 1.5 percent to $1.32.
Fletcher Building declined 0.7 percent to $8.09 and Spark New Zealand fell 0.7 percent to $2.78. Auckland International Airport, the country’s busiest gateway, fell 0.6 percent to $4.93.
Air New Zealand fell 2.5 percent to $2.525, retailer Warehouse Group dropped 2.6 percent to $2.62 and Heartland New Zealand, the Christchurch-based lender, fell 2.5 percent to $1.17.
Australia & New Zealand Banking Group dropped 3 percent to $36 and Westpac Banking Corp shed 2.9 percent to $35.83, tracking declines in stocks listed on the ASX.
SeaDragon, the Omega 3 fish oils company, was unchanged at 1.5 cents, having slumped 32 percent this year. The change-out of the company’s board has continued, with independent director Tim Preston and executive director Ross Keeley saying they won’t stand for re-election at the company’s annual meeting on Aug. 24, while independent director Sean Joyce has resigned, effective from today. The company has flagged it may need to raise more capital.
Pushpay Holdings fell about 1 percent to $4.11. The company has confirmed it is eligible for a $960,000 research and development grant from Callaghan Innovation that will help mobile payments app developer scale up the platform that allows US church congregations to easily make donations.