Market volatility escalates on Greek crisis

Fears over possibility of a Greek exit from Eurozone to impact global markets in the week ahead.

While global markets were initially buoyed last week by news that progress had been made in terms of a Greek bailout deal, gains were eroded in part by the reality that the completion thereof was far from certain.

Top gainers

Brait SE has soured to the top of the gainers list, after finding itself a new inclusion in the JSE Top 40 Index, which was reweighted at the close of business on Friday June 22. The company is also benefitting from the positive reactions to recently released news of its 90% acquisition of the UK clothing and Footwear retailer New Look, as well as positive results released in the previous week (NAV for FY 2015 increased by 141.4%). Market participants would have also been encouraged by the ordinary share bonus issue (with cash dividend alternative) of 77.12c per share proposed.

Top decliners

Resource counters have returned to dominate the decliners list as commodity prices in general were subdued as higher levels of supply continue to meet lower levels of demand with the outlook thereof remaining blurred with uncertainty. While commodity prices were generally flat to lower, the rand managed to steady and offset some of its recent weakness further impacting the sector sentiment over the week.

Greece and the new week

The new week has seen volatility escalate as global markets digest the very real possibility of a Greek exit from the Eurozone. Those hoping for a last minute deal in Europe would have been bitterly disappointed as the Greek Prime Minister abandoned talks and called for a referendum with its people on the current creditor demands/offerings. However, the scheduled referendum on July 5 is post the next payment due to the International Monetary Fund (IMF) on the June 30 and it appears likely that Greece will default on the EUR1.6 billion tranche owed. The European Central Bank has now capped the ceiling on emergency Liquidity Assistance to Greek lenders and in turn Greek banks have imposed capital controls (i.e. a maximum EUR60 daily withdrawal limit) and are also closed until at least July 6 in an attempt to try avoid a collapse in its banking system.  

In China, the weekend saw the Peoples Bank of China cut its one-year lending rate by 0.25% and its reserve requirement ratio by 0.5%. This has followed the recent selloff in the Shanghai Composite as the deleveraging of margin trading compounds the decline from the not so distant market highs.

The US will likely add to the global volatility induced by Greece/EU as Thursday sees the next round of employment data scheduled for release. The unemployment rate is expected to drop to 5.4% while 216 00 people are expected to have been added to the non-farming payroll in the last month. The employment data remains a key indicator in terms of the Federal Reserve’s decisions in ascertaining a rate tightening timeline for the US.

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