Greece Referendum: Greeks reject creditors' austerity programme, ECB decision in focus

Market Movers

• Focus will be on Greece after the Greek population yesterday rejected the creditors’ austerity programme in connection with the referendum.

• This morning heads of the European Commission, the Eurogroup finance minister and ECB will hold a conference call to discuss the implications of the outcome of the Greek referendum. German chancellor Merkel and French president Hollande are scheduled to meet at 18:30 CET in Paris to agree on a common strategy ahead of the heads of state Eurogroup meeting tomorrow evening. The Eurogroup finance ministers are expected to meet early tomorrow morning to prepare this meeting.

• The ECB governing council will hold a conference call this afternoon to discuss a possible increase in the Emergency Liquidity Assistance (ELA). The ECB might also indicate a potential policy response if needed to calm financial markets. The ECB’s response will be key today.

• In the data calendar German factory orders, Sentix for the euro area and ISM nonmanufacturing are due for release.

Selected Market News

• In Greece the creditors’ austerity programme was rejected in connection with yesterday’s referendum with more than 61% voting ‘No’. This was a substantial larger majority for ‘No’ than suggested by polls ahead of the referendum. Obviously the outcome of the referendum creates substantial uncertainty and increases the likelihood of ‘Grexit’. Without additional cash from the ECB it appears unlikely that Greece will be able to reopen banks tomorrow. On the contrary, press reports suggest that daily withdrawals from ATMs cut be cut further to EUR20.

• China on Sunday announced a number of new measures to stabilise the stock market.

Markets Today

• The ‘No’ vote has triggered a broad based ‘risk-off’ move across all asset classes but the market response has been relatively modest so far. EUR/USD has declined about one figure to 1.102. Stock markets in Asia are generally lower with Nikkei down more than 2%. Shanghai is slightly up on the back of the measures announced by the Chinese government yesterday.

• In the Fixed Income Market Bunds should rally today, the core curves should flatten and we expect the periphery to widen 20-50bp versus core initially on the opening.