Global stocks fall ahead of crunch weekend for Greece

GLOBAL stocks fell on Friday as equity investors sought to cut exposure to risk after Greece and its creditors again failed to resolve their differences, paving the way for a last-ditch effort on Saturday to avert a default.

Currency and bond markets took a more cautious stance, driven by expectations that negotiators could still “pull a rabbit out of the hat” – as one strategist put it – before a Tuesday deadline when Athens has to repay 1.6 billion euros (USD 1.8 billion) to the International Monetary Fund.

“The collapse of talks again on Thursday at the eurogroup level… means that any deal before the end of play on Friday is extremely unlikely”, Craig Erlam, senior market analyst at OANDA in London, said in a note.

“By the time the markets reopen next week, Greece may have either secured a deal or accepted default to the IMF… with all this in mind, I expect to see significant risk aversion this morning with investors preparing for fireworks over the weekend.”

If default cannot be averted, participants at Saturday’s meeting are expected to start preparing a “Plan B” to protect the euro zone from financial market turmoil.

The pan-European FTSEurofirst 300 index was down 0.7 percent at 1,563.62 points by 0803 GMT. The MSCI index of world shares fell for a third day, down a quarter of a percent at 433.19 points.

Greece-29-6-CopyThe one stock market appearing driven by factors other than Greece was China’s, which posted some of its worst losses in years as investors worried that the economy is flagging.

In currency markets, where the impact of news on Greece has been less clear, the euro trod water at USD 1.12085, stuck within a tight USD 1.1150-USD 1.1250 range for a third session.

Ten-year Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.85 percent. Yields on lower-rated euro zone bonds in Italy, Spain and Portugal – the three countries seen most vulnerable to spillovers from the Greek crisis – were stable.

“The market still thinks either the EU or Greece are going to pull a rabbit out of the hat at the last minute,” said Nick Stamenkovic, bond strategist at RIA Capital Markets. “Don’t underestimate the Europeans. Europe has always surprised and the market thinks it’s going to do it again.”

Earlier, Chinese stocks, which often march to their own drum beat, sank as investors stampeded out of a market amid increasing signs the country’s eight-month-long bull run is running out of fuel.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 7.9 percent – the biggest drop in seven years – while the Shanghai Composite Index skidded 7.4 percent.

Further falls in China stocks “will send ripples throughout Asian markets,” investment advisor Rivkin said in a note.

Fallout from Greece pressured shares elsewhere in Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1 percent in late afternoon trade, though still on track for a small weekly rise of 0.2 percent.

Japan’s Nikkei ended down 0.3 percent. Despite household spending rising more than expected, inflation has remained flat, keeping alive expectations for more central bank stimulus later this year.

In commodities trading, Brent crude edged up to USD 63.41 a barrel while US crude eased, with both stuck in tight ranges as investors focused on Greece.

“Traders and investors are very much on tenterhooks on the outcome (of talks on Greece),” said Ben Le Brun, market analyst at OptionsXpress in Sydney.

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