Greece overwhelmingly rejected the bailout in yesterday’s referendum as the international community watched Athens move towards a default. European stocks and bond markets are likely to take a hit on Monday as economists try to understand the full consequences of yesterday’s vote. Currently, economists believe that the outcome of the vote will likely hasten Greece’s exit from the euro. Greek Finance Minister Yanis Varoufakis has resigned early today. While he was a supporter of the “no” vote, reports indicate that the self-proclaimed “erratic Marxist” had infuriated creditors with his irregular style and demeanor. Analysts believe that his removal was aimed to avoid any obstacles in negotiating a last-minute deal.
The euro suffered sharp declines after the vote, falling more than 1% against US dollar and more than 2% against the Japanese yen. The EUR/USD is currently trading at 1.106 after regaining some overnight losses. Currency weakness is not a primary concern in the Eurozone. However, the reaction of other indebted countries in the Eurozone and its effect on the markets should provide a better understanding of how Greece’s referendum will impact the shared currency. Eurozone officials are concerned that other countries will adopt Greece’s policies and sentiment towards the Eurozone and its financial institutions.
European stock markets have opened the week with stark declines, highlighting the major concerns mounting in the Eurozone. The UK’s FTSE 100 declined around 0.6% so far this morning, erasing about 40 points to trade at 6547.65. The German DAX fell 1.22%, shedding 133 points to trade at 10924.6. The French CAC 40 has declined nearly 60 points, or 1.24%, to trade at 4748.4. The Spanish IBEX 35 declined 1.34% and is currently trading at 10635.3. Current expectations are that the trend will continue throughout the day with a possible hike towards the end of the session, depending on whether new progress in Greece’s situation will be made during the day.
Gold prices rose around 0.6% in early Asian trading as its safe-haven status drove demand. The euro’s weakness in light of Greece’s Sunday referendum has pushed gold prices up as the dollar provides a countering force. The strong U.S. dollar is at its highest level in the last month and is expected to get an interest rate hike in the near future, limiting gold’s safe-haven appeal.
The upcoming week includes a number of important economic data releases. On Monday U.S. service PMI will be released, detailing growth in the non-manufacturing sector. On Tuesday, the Reserve Bank of Australia (RBA) will release its interest rate decision, followed by minutes from Fed’s Federal Open Market Committee (FOMC) on Wednesday.