Standard & Poor's downgrades Greece to junk status

Tuesday, June 30, 2015

The heavy sell-off that dominated the global equity markets yesterday eased as there is little sign of contagion in European economies due to a possible Grexit as the euro held above 1.12 yesterday. Asian equity markets rebounded strongly and posted renewed gains overnight. The Nikkei index climbed 0.63% higher above 20,200, while the Hang Seng index rallied over 400 points (1.5%) towards 26,380. This morning, European equity markets remained in negative territory but posted limited losses in early trade. The CAC, DAX, IBEX and London equity benchmark indices retreated between 0.5% and 0.9%, at the time of writing.

A Grexit is still not unavoidable, but if Greece does leave the euro we could expect another round of high volatility and nervous trading conditions across markets for few trading sessions. The Euro surprised markets yesterday after recovering from earlier sharp losses to finish the day higher at 1.1236. This morning, the euro has been hovering around 1.1180 against the USD. Sterling rallied strongly against the euro yesterday and hit a high at 1.4309 to end the session at 1.4005. This morning, sterling edged higher and held above 1.4050 in early trade.

GBPUSD

GBPEUR Curncy (GBP-EUR X-RATE)   2015-06-30 09-39-53

EURUSD

EUR Curncy (Euro Spot )  Daily 30 2015-06-30 09-41-24

Standard & Poor’s, the ratings agency, downgraded Greece to junk status, reporting there a 50% chance of Greece leaving the Eurozone. The Greek government confirmed that it won’t make a EUR 1.55 bln loan repayment to the IMF today. The Greek Prime Minister Alexis Tsipras wrote to European leaders asking for an extension of the current bailout, which expires today. Greek banks will remain closed to the public until at least Tuesday 7th July. However, some bank branches will be open to help pensioners who are not owners of a debit card.  

Puerto Rico’s bonds plunged to a new low after the country’s government admitted that its $70 bln debt issue is not payable. The government of Alejandro Garcia Padilla has been fighting for several years to keep Puerto Rico solvent on most of its liabilities. However, the island’s population has been hurt from an extensive austerity programme while banks are running dry. Following an interview with New York Times, Mr Padilla reported Puerto Rico would seek to restructure its liabilities.

On the macroeconomic front, UK GfK consumer confidence surged to 7 in June compared to 1 in May, beating analysts’ expectations. German retail sales rose 0.5% m/m in May compared to a 1.7% rise in April. UK economy grew by 0.4% in Q1 2015, revised up from a previous estimate of 0.3%. The release of the Eurozone’s unemployment as well as inflation data will draw investors’ attention. In the US, market participants will be watching for pending home sales, Chicago PMI and consumer confidence data.

 

Events for today:

0930

UK

May

Consumer Dredit

1000

EZ

Jun

Inflation Flash

1445

US

Jun

Chicago PMI

1500

US

May

Pending Home Sales

1500

US

Jun

Consumer Confidence

 

All times UK Local Time

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