July 8, 2015    5 minute read

Global Market Reactions to Greece’s ‘No’ Vote

   July 8, 2015    5 minute read

Global Market Reactions to Greece’s ‘No’ Vote

July 5, 2015 marked a 61% to 39% majority rejection of Greece’s bailout referendum, with refusal of the European Commission’s (EC), International Monetary Fund’s (IMF), and the European Central Bank’s (ECB) joint proposal occurring in all regions of the country. With deepened doubts over the country’s future in the European Union, global markets experienced an immediate dip following the outcome, though uncertainties over Greece’s short-term future have kept most losses in check.

Across the Americas, the NASDAQ Composite [IXIC] index experienced an immediate decline on July 6, falling 17.27 points, or 0.3%, to 4,991.94, while the Dow Jones Industrial Average [DJI] index slipped 46.53 points to reach 17,683.58, measuring an identical 0.3% drop. The Standard & Poor’s 500 [SPX] index lost 8.02 points to close at 2,068.76, a 0.4% fall, with nine of its ten industry groups down. On the morning of July 7, equity markets suggested further low openings across United States, with Dow Jones Industrial Average, S&P 500, and NASDAQ 100 futures indicating respective 0.26%, 0.39%, and 0.34% declines. Nevertheless, around noon prices regained momentum, with the Dow Jones index making considerable gains 2:39 p.m. onwards, closing at 17,779.38, an impressive 95.80 points above Monday’s closing price, or a 0.54% increase. The NASDAQ index closed at 4,995.56, a small 3.62 points gain, or 0.07%, while S&P 500 surged 0.62% to close at 2,081.51, a 12.75 points gain.

Graph 1: NASDAQ Composite Index (Source: FreeStockCharts.com)

Graph 1: NASDAQ Composite Index (Source: FreeStockCharts.com)

 

Graph 2: Dow Jones Industrial Average Index (Source: FreeStockCharts.com)

Graph 2: Dow Jones Industrial Average Index (Source: FreeStockCharts.com)

 

Graph 3: Dow Jones Gain at 2:39 p.m. (Source: FreeStockCharts.com)

Graph 3: Dow Jones Gain at 2:39 p.m. (Source: FreeStockCharts.com)

 

Graph 4: Standard & Poor’s 500 Index (Source: FreeStockCharts.com)

Graph 4: Standard & Poor’s 500 Index (Source: FreeStockCharts.com)

Europe experienced similar immediate losses on Monday, with the German DAX Index [GDAXI] tumbling 1.4% and the French CAC-40 [FCHI] index falling 1.6%. In the wake of a Eurozone summit scheduled on the evening of July 7, however, European stocks rose modestly ahead of talks, with the CAC-40 [FCHI] gaining 0.10%, and the DAX Index rising 0.21%. In the United Kingdom, the FTSE 100 [FTSE] index instead dropped 0.8% on Monday, with a further 0.02% slump occurring Tuesday morning due to losses in the mining sector. The FTSE 100 closed 103.47 points below on July 7, a significant 1.58% decline, affected heavily by 5.36%, 2.19%, and 6.36% share drops in Rolls Royce, Marks and Spencer, and Asos respectively.

Share drops could be felt in Asia especially, with Japan’s Nikkei 225 [N225] index falling below 20,000 for the first time in a week on July 8, reaching a mid-day 19,941.99 low, the largest fall since May 18. This follows Tokyo’s benchmark stock dropping 2.08% immediately following the Greek vote, falling 427.67 points to 20,112.12 on the 6th. The reaction across Japanese markets stems from investor attraction to the yen – a safe haven in the wake of Greek turmoil – which has reduced profitability of major Japanese exporters like Nissan and Sony, negatively impacting domestic stocks.

The index closed trading at 19,737.64, a massive 638.95 collapse, or 3.14%. Chinese stocks are in disarray also, with the Shanghai Composite [SSE] index opening 8% below on Wednesday, before closing 5.9% down at 3,507.192, a 219.93 point fall. The Shenzhen Stock Exchange Composite [SZ] index fell 48.377 points, closing 2.50% down, while the Hang Seng [HSI] index slipped 1,458.75 points, or 5.84%, to 23,516.56. Relative to the Western world, there has been a much more considerable panic amongst Asian markets, due to liquidity strain stemming from irrational dumping of shares. To prevent a complete collapse, the People’s Bank of China has cut its one-year benchmark lending rate to 4.85% and its deposit rate to 2%, new IPO’s have been suspended, all short-selling has been banned, and brokerage firms have committed to purchasing billions worth of stocks. Although the Chinese stock market crash has been worsened by Greek turmoil, with 1,430 of the 2,776 companies traded in China temporarily suspending trade and $3.2 trillion wiped from Chinese stocks in just three weeks, the incredible volatility stems much more from the country’s slow economic growth, its lowest since 2009.

Graph 5: Nikkei 225 Index (Source: Investing.com)

Graph 5: Nikkei 225 Index (Source: Investing.com)

 

Graph 6: Shanghai Composite Index (Source: Investing.com)

Graph 6: Shanghai Composite Index (Source: Investing.com)

 

Graph 7: Hang Seng Index (Source: Investing.com)

Graph 7: Hang Seng Index (Source: Investing.com)

Despite share drops in most regions since the Greek referendum, Western markets have largely kept from panicking, in part because a number of financial institutions have already reduced their exposure to Greek debt. Moreover, according to PNC Financial Services, Greece accounts for only “0.33% of global GDP and less than 1% of global stock market value”. Furthermore, a certain degree of Greek news has already been factored into the market, stemming from debt discussion over the past several months. Asian markets have experienced much more significant scares, particularly in China, though these drops are more exacerbated by the Greek referendum, rather than a direct consequence of the vote. With Greece’s future in doubt, shakes to global markets have already been felt, though as it stands, the full magnitude of the situation remains to be seen.

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