Greek banks have been closed and capital controls were imposed on Sunday in an effort to gain control of Greece’s crippled banking system. Bailout talks between creditors and Greece’s left-wing government broke down over the weekend, leading the European Central Bank (ECB) to freeze funding support for Greek banks. This funding is vital to Greece, forcing the government to employ means such as the suspension of banking activity in an effort to avoid the collapse of the banking system. Furthermore, cash machines will be limited to a 60 euro withdrawal, a policy meant to prevent mass withdrawals. The euro fell nearly 2% early on Monday, and European stock markets are expected to post sharp declines as they open the week. Current projections forecast about 3% declines in the German DAX, the French CAC and the UK’s FTSE. However, these losses are not limited to Europe. Asian stock markets have also dived. Most notably, Chinese shares have declined another 7% after losing 25% over the last two weeks. As Greece seems to move further and further away from the euro, the common currency fell 1.9% to trade at $1.0955, its lowest level in nearly a month.
Although the Greek government has opted to allow the public to cast the vote on whether recent bailout propositions from creditors should be accepted or not, the move has created serious concerns among top European finance officials that these programs will be rejected. Greece’s deadline for repaying its next batch of payments is due tomorrow, prompting a number of major European banks to confirm that they are ready for the possible consequences of a Greek default.
In the meantime, the U.S. prepares for its first interest rate hike in nearly a decade. According to New York Fed President William Dudley, an interest rate hike in September is still very much a possibility if the U.S. economy continues to strengthen. He added that the Fed may wait until December if the economic climate is not optimal for a rate increase.
Considering the current economic climate, the coming week offers some interesting data releases. German inflation data is scheduled to release on Monday, shortly followed by U.S. housing data. UK and Canadian GDP data is scheduled to release on Tuesday. However, all eyes are set on Thursday’s U.S. nonfarm payroll report, detailing the number of jobs added to the U.S. market. This report is highly influential, making it even more interesting, as the Federal Reserve maintains a data-driven position on its financial policies.