European Stocks Still Pressured by Greek Worries

30 Jun 2015 | Author: | No comments yet »

Draghi and Bunds the Answer to Riddle of Euro’s Best Gain in 4 Years.

ATHENS, Greece (AP) — The latest news on Greece’s financial woes on a day a big repayment to the International Monetary Fund is due and the country’s bailout program with European creditors ends (all times local): Jean-Claude Juncker, the head of the European Commission, has made a last-ditch effort to help Greece get a bailout deal, provided Greek Prime Minister Alexis Tsipras campaigns for staying in the euro. European stocks extended losses for a second session on Tuesday, the day Greece’s international bailout program is set to expire, leaving the country teetering on the brink of default.Riddle me this: How can the euro be heading for its best quarter in four years when Greece is on the verge of defaulting and possibly exiting the currency?

An EU official, official who asked not to be identified because of the sensitivity for the talks, called it “a sort of last-minute offer” before Greece’s bailout program runs out later and Athens needs to make a 1.6 billion euro ($1.8 billion) debt payment to the IMF. One answer is that Mario Draghi retains the faith of traders and investors that he won back in 2012 when the European Central Bank head pledged to do whatever it takes to hold the euro together. After the European market close on Monday, Standard & Poor’s Ratings Services downgraded Greece’s credit rating deeper into junk territory and speculated that the probability of the country exiting the eurozone is now roughly 50%. “This is clearly now a fast-moving situation and it is still unclear as to how it will play out,” said Gary Jenkins, credit strategist at London-based asset manager LNG Capital. “The situation is fluid, headline-driven and subject to changes in direction,” said Tom Levinson, a strategist at Sberbank.

The common currency started the week tumbling almost 2 percent after Greek leader Alexis Tsipras’s decision to call a referendum on aid proposals derailed negotiations with creditors. SBRCY -2.59 % He said it is also “increasingly politically charged” ahead of a Greek referendum on July 5 over whether to accept austerity measures demanded by the country’s creditors in exchange for further aid.

It was at $1.1163 as of 8 a.m. in London, poised for a 4 percent advance for the quarter, the most since the three months ended March 2011. “Given that the risks of a default and an exit have obviously risen quite dramatically in the last week, I would have expected the euro to be weaker,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “There is a fairly genuine sense of complacency or belief that it really doesn’t matter how Greece plays out next week.” Draghi has more than words on his side if this round of Greek roulette gets messy. Greece owes the IMF $26bn, almost four times greater than the total value of overdue funds in the IMF’s history, according to the Council on Foreign Relations. In addition to emergency facilities to support the region’s banks — a program that has already kept Greece’s lenders alive — the ECB is already buying 60 billion euros ($67 billion) a month of bonds and it can increase asset purchases through the so far unused Outright Monetary Transactions program.

While one missed payment is not expected to trigger a wave of defaults, it is a defining moment in the Greek crisis that some European leaders fear could unravel 60 years of European integration. The looming debt default has brought the euro down to a seven-year low against the pound, although the currency edged up from a four-week low of $1.0955 against the dollar in trading in Asia on Tuesday. The Dow Jones Industrial Average fell more than 350 points, or 2%, its biggest percentage decline since October, putting the blue-chip index into negative territory for the year.

Asian markets, also hit by jitters about China’s slowing economy after a recent cut in interest rates, were calmer on Tuesday as investors went into wait-and-see mode. The CBOE Volatility index, often referred to as the “investor fear gauge” because it measures the premium traders are willing to pay for protection against a drop in prices, has risen more than 30% to a nearly five-month high. Benoît Cœuré of the Bank’s governing council said in an interview with Les Echos that Greece’s exit from the eurozone could not be excluded, although he hoped it would stay part of the currency union. In a defiant TV address on Monday night, he urged Greeks to vote no in the referendum on Sunday. “The greater the number of no [votes], the greater the weapon the government will have to relaunch negotiations.

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