61.3% of the Greek population voted 'No' to the Institutions' proposal, implying we are now one step closer to a Grexit. We see two scenarios from here and in both cases uncertainty will remain high and dominate for a long time.
In the first scenario, we expect a Grexit as there would be a continued harsh stance between Tsipras and the creditors in the coming negotiations about a new deal.
However, there is still a likelihood of a political agreement, which in our view could be reached if the current government steps down. A government collapse could follow from increased pressure from the Greek populations dissatisfaction with closed banks and potential payments in IOUs.
From a political angle, the next steps are uncertain, as no new meetings for negotiation are scheduled. In terms of Greek payments, the next key event is on 20 July, when Greece has to repay the ECB. If Greece does not pay the ECB, it would trigger a broader Greek default and be another step towards a Grexit.
In the FI market, we expect Bunds to rally, core curves should flatten, ASW spreads widen and we expect the periphery to widen 20-50bp vs. core on the opening. We recommend clients to stay sidelined in the periphery for now.
We expect the EUR to weaken, particularly against safe haven currencies like JPY, CHF and USD. Clients should stay short EUR/USD.
EUR/SEK and EUR/DKK should fall slightly while the impact on NOK is mixed given its correlation with oil prices. Expect Scandi FI outperformance as the market prices in further rate cuts and money market curves flatten.
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