On 06 July, 2015 – Most stock indices retreated in the aftermath of Sunday’s ‘no’ vote in Greece
The US market was also impacted by China’s decision to implement emergency measures to stop a selloff in the Chinese market; in Europe, financials stocks were badly hit following the Greece referendum.
United States
Stocks retreated Monday, following global share indices lower after Greeks decisively backed the government in rejecting the austerity terms of a bailout and as China implemented emergency measures to stop a selloff in Shanghai’s market. The Dow Jones industrials and Nasdaq were 0.3% lower on the day while the S&P lost 0.4%.
Investors sold riskier assets after Greece voted in a referendum Sunday to reject their creditors’ austerity terms for aid, but the declines were muted compared with a week ago when the plan to hold the referendum was announced. Now Greece needs to act quickly to avoid a meltdown of its banks, which the government said will remain shut through Wednesday. German Chancellor Angela Merkel and French President Francois Hollande are due to meet other Eurozone leaders tomorrow.
Transocean and National Oilwell Varco retreated after an industry report last week showed that the number of U.S. oil rigs in use advanced for the first time this year. Freeport-McMoRan declined to its lowest since March 20. Copper futures fell the most since January amid a slump in industrial metals as moves by China to halt a stock market collapse and Greece’s vote against austerity added to concern that global demand will ebb. Aetna tumbled after takeover target Humana cut its earnings outlook due to higher than expected hospital admissions in its Medicare business. Humana advanced after Aetna agreed on Friday to purchase the company. Keurig Green Mountain slid to the lowest since 2013 on a broker downgrade. Intel and Micron Technology declined.
Gold at the afternoon London fixing was down US$1.95 to US$1,166.00. Copper futures were down 4.0% to US$2.73. WTI spot crude was down US$4.17 to US$52.76. Dated Brent spot crude lost US$3.58 to US$56.74. The U.S. dollar was up against the euro, Swiss franc and the Canadian and Australian dollars. However, it declined against the yen and the pound. The Dollar Index was down 0.15%. The yield on US Treasury 30 year bond was down 10 basis points to 3.09% while the yield on the 10 year note dropped 8 basis points to 2.30%.
Europe
Stocks dropped in Europe Monday after the Greek people voted to reject the austerity measures proposed by the country’s international creditors. Financial stocks were among the weakest performers after the overwhelming ‘No’ vote in Sunday’s referendum. The FTSE was down 0.8% and the SMI lost 0.6%. The CAC and DAX dropped 2.0% and 1.5% respectively. The Italian MIB plummeted 4.0% while Spain’s IBEX dropped 2.2%.
The “no” vote on the referendum has added to recent concerns about a possible Greek default which would lead to its leaving the Eurozone. The European Central Bank’s governing council will hold a conference call later in the global market day to consider whether to continue providing emergency funding for Greek banks. Eurozone nations will hold an emergency summit on Tuesday to discuss the Greek referendum result. While Greece and its international creditors are expected to try to restart negotiations on a new bailout agreement, the ECB’s response would be crucial in determining the extent of contagion.
Financial stocks were hardest hit. Shares of Commerzbank, Deutsche Bank, BNP Paribas, Crédit Agricole, Société Générale, Royal Bank of Scotland, Barclays and Lloyds all retreated. Utility RWE declined on a report it is considering a restructuring of units to reduce costs. E.ON also weakened. Deutsche Post increased after the postal operator reached a deal with trade union Verdi over pay and working conditions. Rolls-Royce Holdings tumbled after the company cut its full year profit guidance and scrapped its first ever share buyback program. EasyJet slipped after posting improved traffic figures for June.
Germany’s factory orders decreased for the first time in three months in May reflecting the weakness in domestic market. Factory orders fell 0.2% on the month after increasing 2.2% in April.
Asia Pacific
Most stock indices declined here in the wake of the results from the Greek election. The Shanghai Composite responded positively to the Chinese government moves to stabilize the index over the weekend. Investors turned risk averse after Greek voters overwhelmingly rejected austerity demands from creditors in Sunday’s referendum, raising fears the country could be forced to leave the Eurozone.
The Shanghai Composite closed sharply higher in a highly volatile session after policymakers unleashed unprecedented rescue measures over the weekend. The benchmark Shanghai Composite surged 7.8% at the open before giving up all the gains in midday trading. The index once again drifted higher towards the close of trade to end the session up 2.4%. China suspended initial public offerings over the weekend, while the People’s Bank of China said it would provide liquidity for margin trading. China’s top brokerages and fund managers pledged to invest at least 120 billion yuan into stocks aimed at halting the market rout.
However, the Hang Seng plunged 3.2% and into correction territory. The Hang Seng reached a post-financial crisis high close of 28,442.8 on April 28, and has gradually drifted lower since. But Monday’s drop means the index is now down 11.8% from that level, meaning it has entered a technical correction. Gains for the year have been whittled to 6.9%. Since the Chinese markets peaked on June 12, the Hang Seng has fallen 7.5%.
The Nikkei retreated 2.1% as uncertainty over Greece’s debt crisis prompted a flight to safe haven assets, including the Japanese yen. Banks fell broadly. Mitsubishi UFJ Financial Group, Mizuho Financial and Sumitomo Mitsui Financial all ended lower. Exporters Honda Motor, Sharp, Sony, Fanuc, Mazda Motor, Panasonic and Suzuki Motor declined. Toshiba retreated on a Nikkei report that the company’s accounting scandal is worsening and it will now need to downwardly revise its past operating profits by more than ¥150 billion.
The S&P/ASX tumbled 1.2% while the All Ordinaries was 1.2% lower on the day. The Australian dollar dropped to a fresh six-year low as Greece’s rejection of austerity measures and the turmoil in China’s stock markets sparked safe haven demand for the US dollar. BHP Billiton, Rio Tinto and Fortescue Metals Group slumped, weighed down by declines in commodity prices. However, gold miner Newcrest Mining and Evolution Mining soared as safe-haven bids pushed up gold prices. The Kospi dropped 2.4% while the Sensex added 0.4%.
Global Stock Market Recap
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
The Reserve Bank of Australia announces its monetary policy decision. Germany and the UK post May industrial production. France releases May merchandise trade. Canada and the US report May international trade balances. May JOLTS will also be posted along with consumer credit.
*Note — all releases are listed in local time.