The crisis in Greece has been weighing down European stocks over the past week. On Monday, July 6, Alcatel-Lucent (ALU) in Paris opened 1.8% lower.
On July 6, Greece’s finance minister, Yanis Varoufakis resigned. In the press, he has been accusing the European leaders of spreading terrorism in Greece (GREK).
The Greek referendum results are in—61.31% of Greece has voted “no,” while the remaining 38.69% voted “yes” in response to the possible bailout.
Markit Economics’ final Eurozone Manufacturing PMI Index report for June met expectations. The reading came in at 52.5 for June.
Uncertainty drives investors to safe-haven investments like US blue chip stocks (SPY) and Treasury bonds (TLT). Greece’s default created uncertainty in the market.
A Grexit—Greece exiting the Eurozone—could have a negative effect on Greece’s bordering countries. The rest of the Eurozone is also vulnerable.
On June 29, Standard & Poor’s downgraded Greece’s sovereign debt rating from CCC to CCC-. Currently, Greece has a massive debt load of over 300 billion euros.
As a result of its default, Greece has been cut off from any further IMF funding until the debt is repaid. It lost access to over 16 billion euros.
Uncertainty regarding whether Greece would default on its debt or accept the troika’s conditions lessened as Greece officially defaulted on its debt payment.
Macroeconomic indicators in Germany and France look to be strong, which could be a tailwind for equities. However, cautious investors should wait it out until some outcome is apparent for the Greek economy.
Long-term outlook: The real issue isn’t debt sustainability—it’s growth Even if Greece and its creditors are able to arrive at a short-term deal, this is unlikely to solve Greece’s main…
The Eurozone is much better prepared to tackle Grexit now than it was in 2012. Most countries have reduced their exposure to Greek debt.
Greek Prime Minister Alexis Tsipras walked away from negotiations this weekend and called for a referendum from his people on July 5. This surprising turn of events has sharply raised the probability of a Grexit.
Economic confidence weakened in the Eurozone due to the Greece crisis escalating, worries of a Grexit, and a subsequent negative effect on other Eurozone economies.
The EU harmonized inflation rate in Germany fell to 0.1% in June on a YoY basis from May’s 0.7%. It was being pumped by the ECB’s monetary stimulus package.
Spain’s economy is finally out of deflation. The inflation rate in Spain was recorded at 0% in June. Spain recorded a 0.20% rise in the EU harmonized CPI.
Central bank actions have been driving markets in Japan, China, and India, among other economies. The fall in the prime lending rates in China lifted Chinese stocks.
Despite Greece’s compromises, the deal did not go through because creditors believe that Greece is relying more on tax hikes than spending cuts, which could be damaging to economic growth.
Domestic demand in Europe grew in the first quarter, aided by the low interest rates and easy monetary policy. According to EuroStat, consumer spending grew by 0.5%.
Though growth of the Eurozone’s industrial production index over the past year was slight at 0.8%, it’s heartening to see that industrial output has been growing throughout the year.