LONDON MARKET MIDDAY: Grexit Worries Sink Global Equities Markets

LONDON (Alliance News) - Concerns about a Greek exit from the eurozone has caused a slump in global stock markets Monday, with the FTSE 100 hitting a fresh five-month low and US futures pointing to a much lower open.

The FTSE 100 trades down 1.6% at 6,6643.10, having hit a low of 6,598.64 earlier in the session, its lowest level since January 20. The FTSE 250 is down 1.3% at 17,584.61 and the AIM All-Share down 1.4% at 757.44.

European stocks are the hardest hit by Greece's troubles, with the CAC 40 in Paris down 3.4%, and the DAX 30 in Frankfurt down 3.2%. The European session followed a sell-off in Asia, with the Nikkei in Tokyo closing down 2.9%, the Hang Seng down 2.6%, and the Shanghai Composite down 3.3%.

The Greek debt saga hangs over the US open as well, with futures pointing to a lower open. The Dow Jones Industrial Average is pointed down 1.1%. The S&P 500 is called 1.2% lower, while the Nasdaq 100 is projected down 1.3%.

Greek Prime Minister Alexis Tsipras said Sunday that Greece is imposing capital controls and ordering the closure of banks, as Athens scrambles to avert the collapse of the country's financial system. In a televised speech to the nation Sunday, Tsipras said the Greek central bank recommended the measures after the European Central Bank decided against raising the amount of emergency credit that it provides to the country's banks.

The European Commission responded Monday by saying that capital controls imposed by Greece are justified on grounds of public policy, but they should be applied only for the shortest period possible.

Sunday's capital control measures came amid deep uncertainty in Greece after its parliament approved a referendum on the offered terms of the country's bailout. The referendum, which is due on July 5, was pushed by Tsipras after he was left unhappy at the terms of the bailout offered by creditors, which rejected Greece's appeal to extend its bailout into July.

While the weekend's developments have significantly increased the chance of a Greek exit from the eurozone, Salman Ahmed, global strategist and portfolio manager at Lombard Odier, says that the single currency union has moved on from the debt crisis in 2011/2012, and the risks to financial markets from a Grexit are now much lower.

Ahmed says the eurozone has a number of strong backstops in place and direct financial linkages to Greece are much more concentrated this time around, with 80% of foreign claims on the Greek economy now residing with official institutions, thus limiting the direct impact on the global financial system.

"In essence, the current situation is more about political credibility of the eurozone rather than direct financial implications of a Greek default," Ahmed says. "Perhaps most importantly, the ECB is already engaged in a [quantitative easing] programme and has at its disposal the [Outright Monetary Transactions] tool (recently green-lighted by the European Court of Justice), which has been designed specifically for this kind of situation."

Burkhard Varnholt, chief investment officer at Julius Baer, says the market's expectation for a Greek default on its EUR1.6 billion debt payment due to the International Monetary Fund on Tuesday is close to a 100% probability, but does not believe that a non-payment would cause a meltdown in bond or stock markets.

"First, such an event is being highly anticipated. Second, almost all Greek government bonds are owned by public institutions, which will neither panic nor default themselves. Third, sadly enough, Greece really does not produce more than 2% of European gross domestic product and will thus not become a ‘Lehman moment’," Varnhold says.

Amid the uncertainty over Greece's status as a member of the eurozone, and even European Union, investors have flocked to the traditional safe haven asset of gold. The price of the precious metal rose to a high of USD1,188.07 an ounce, but has since fallen back to USD1,177.40 an ounce midday Monday. The rise in the price of gold has caused precious metals miners to be amongst the few gainers in the London stock market.

In the FTSE 100, Randgold Resources trades up 1.4% and Fresnillo is up 0.4%. In the FTSE 250, Centamin is up 1.2% and Acacia Mining is up 0.2%.

In the AIM All-Share index, management services company Progility trades down 27%. The company said trading for its final few months of the year to end-June is expected to be "disappointing", with earnings before interest, tax, depreciation, amortisation and after central costs to be "markedly below expectations".

Transense Technologies trades down 22% after it said it is to raise a total of GBP3 million via a two-tranche placing with new institutional and other investors and said Nigel Rogers will be appointed non-executive deputy chairman following the placing.

The transportation sensor systems provider said it has conditionally placed 135.1 million shares at 1.5 pence per share to raise GBP2 million and has proposed raising a further GBP1 million via the issue of 66.6 million shares to existing shareholders. The company currently trades at 1.6624p.

Anglo Asian Mining is up 8.2% after Chief Executive Reza Vaziri was set to tell the company's annual general meeting that 2015 will mark the implementation of the company's turnaround strategy to return the company to profitability.

Still ahead in the economic calendar, German inflation is scheduled for 1300 BST. In the US, pending home sales are due at 1500 BST, while the Dallas Fed Manufacturing Business index is due at 1530 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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