Week End Blog – Oh No! Not Greece Again!

· by · in FINANCIAL MARKETS, MACRO. ·

Ok, I give in, or up, or whatever. Financial markets are held hostage by Greece. Therefore, in this Week End Blog lots and lots of Greece. Things are really starting to look ugly as negotiations resulted in nothing but frustration. The 20th of July now seems to be the ultimate ultimate deadline as Greece has to pay back a significant chunk of ECB loans on that day. This week the 2-year benchmark yield reached a high of almost 30%. Implied default stands at roughly 90%.

Greek bank deposits are declining rapidly. This week alone total bank deposits fell by more than EUR 3 billion estimates showed. Currency in circulation is rising, accordingly.

Increasing deposit withdraws implies more ELA funding by the ECB. Just this week the ECB emphasized ELA can continue as long a Greek banks are solvent. Apparently, the ECB judges they still are. Equity investors are less sure, though, as 99% of the value of Greek bank stocks has vanished.

The looming debt abyss for Greece also reignited contagion fears. While financial contagion risks are said to be limited (something we only really get to find out when a default or Grexit occurs), political contagion risk is still abundant. This is underpinned by the fact that Spanish bond yields have shot up more than Italian bond yields, despite the fact that the former is clearly the healthier of the two.

Investor anxiety about Greece is found in other places as well. The implied volatility of the German Dax Index has decoupled from the VIX index. In fact, measured as the percentile difference, the gap between the VDAX and VIX is the biggest ever recorded.

One market refused to join the Greek ‘party’, however. The euro actually increased in value and briefly touched 1.14 against the US dollar. This is totally different from the Greek episodes before when the currency got crushed. Positioning seems to best the best explanations for the resilience of the euro, but it remains fairly remarkable.

For the Greek people things look grimmer by the minute. The economic recovery has waned. A Bloomberg article this week stated that ‘things are so bad in Greece that people are moving back in with their parents.’ You can read the article here.

I’m not done with Greece yet. This week, bitcoin suddenly showed signs of life as the crypto currency rose more than 10%. It was suggested that even that move was related to Greece and the ongoing bank run over there. Well, at least its awake!

Eight charts on Greece, let’s move on. Things are looking a little ‘wobbly’ in China as well. After a massive rally equities have reversed. In just one week the Shanghai Composite Index fell almost 14%. That is, of course, still peanuts in comparison to the 140% rally that started in the middle of last year, but still the pace of the decline is impressive. Time for more Chinese stimulus?

Apart from soaring valuations, massive turnovers and just outright speculation pressure on Chinese equities could also come from the housing market. For years on end the Chinese got well paid for owning (additional) houses as prices went through the roof. With the (successful) attempt of the Chinese government to cool down the real estate market, a lot of Chinese tried their luck in the equity markets. But in recent months the Chinese property sector has started to improve, which could convince the Chinese to move back to homes, instead.

This week’s last chart is also on China. Once in while it makes sense to give some thought to the long-term trends that are influencing financial markets. Aging is one of them. Below is China’s population tree in 2050. If it’s a tree at all, it’s certainly no longer a Xmas tree.

Thanks for reading the Week End Blog. Enjoy your weekend!

2 responses to “Week End Blog – Oh No! Not Greece Again!”

  1. Pingback: Beleggingslinks week 25 – Alweer griekenland! | A3 Beleggen·

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