Euro implications
Grexit - what if? p. 2: Our main scenario is still that Greece will remain in the eurozone as we expect the current 'game of chicken' to end eventually with the Greek political leaders blinking first. If we were to end up with a 'Grexit' the euro leaders would respond strongly and the ECB would commit to do 'whatever it takes' to limit contagion. This could involve expanding QE or activate OMT.
G10 FX, p. 3: We expect that a 'Grexit' would in the weeks following the event take EUR/USD down at least three big figures. Further out, the downdrift in EUR/USD would be prolonged and the bottom lower. In our FX Trading Portfolio, we are short EUR/USD. For clients who want to hedge a Grexit, short EUR/CHF is an option.
Euro govies, p. 4: Under a Grexit, the periphery would come under pressure. As we anticipate a strong policy response, we would expect the biggest price action to happen in the run up to the event. We would expect a risk-off move to quickly be replaced by a policy-induced rally in the periphery. Medium term, we would not expect a new 'exit risk premium' to be priced into the periphery.
EUR swaps, p.5: We believe that the initial effect of a Grexit on the EUR money market would be limited and much smaller than in 2011 and 2012, but that credit spreads would move wider driven by increased uncertainty over cross-border exposure. To hedge a Grexit, clients should consider paying 2y Eonia.
Covered bonds, p. 6: A Grexit could test the covered bond product's default-free history. While ECB policy responses would likely keep spreads contained, we prefer non-EEA jurisdictions. We prefer Scandi EUR covered bonds to core eurozone peers, noting also that the former continue to offer a spread pick-up.
Equities, p7: In the event of a Grexit, we would expect European equity markets to react negatively initially, but would not expect a longer-term correction.
Scandi implications
Danish FX and FI markets, p.8: We think a Grexit would be negative for EUR/DKK. Danish investors with a hedging mandate should hedge EUR exposure in longer-dated forwards. Clients who want to hedge a Grexit should consider purchasing Danish government and mortgage bonds as well as receiving at the long end of the swap curve.
Swedish FX and FI markets, p.9: A Grexit would likely trigger inflows into Swedish markets but to a much smaller extent than in 2011-12. The trades we would expect to work well both in our main scenario, where Greece stays in the eurozone, and if it exits, are 5Y-10Y SGB curve flattener and buying Kommuninvest bonds vs. covered bonds.
Norwegian FX and FI markets, p.10: Here we would also not expect similar inflows into FX and FI markets as in 2011-12. We would expect the spread between bunds and NGBs to widen in the longer end, with a Grexit only slightly positive for NOK.
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