00:05 GMT07 August 2020
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    Greece's Gordian Knot: Syriza Tackles Austerity (404)
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    With Greece possibly defaulting tomorrow, investors dumped US stocks, buying into US and German debt.

    Kristian Rouz – US shares retreated at the open on Monday with the Dow Jones plunging as much as 200 points and banking sector among biggest losers, chiefly due to the increasing risks stirred by the debt deadlock in Greece.

    The banking shutdown in Athens sent shockwaves across global financials with the common currency slumping below $1.10.

    The downward pressure on US stocks is also supported by the ongoing slump in Chinese stocks despite the monetary stimulus enacted by Beijing yesterday. In such circumstances, demand for safer assets is rife, with gold gaining ground insignificantly, and investors fleeing Greece for US Treasuries and Deutsche Bunds.

    New evidence of Greece edging closer to exit from the Eurozone weighed on US equities early on Monday. Amid thick trading volumes, all three major US indices slumped just over 1% each. Among other riskier assets, commodities depreciated as well, with crude oil among biggest losers.

    The Dow Jones index has lost so far 1.17%, or 209.56 points, down to 17,737.12, while the S&P 500 Index shed 1.14%, or23.91 points, to 2,077.58. Nine out of ten S&P sectors posted losses with only the utilities on the rise as cheaper energy and more stable consumer demand have turned the sector into S&P’s safest.

    The NASDAQ Index lost 66.69 points, or 1.31%, down to 5,013.81 points. Investors abandon equities, as the widespread sentiment is that Greece is very likely to exit the euro. However, the meltdown could have been greater had the Greek government not announced some nation’s banks will open on Thursday to make payments to pensioners.

    Greece has to pay some $1.8 bln to the IMF by tomorrow. If it fails to do so, a default is imminent. Further evidence of its ability to service the debt will have to be provided by Athens soon as well, making the situation even more complicated. Most market participants have lost their faith in Greece’s ability to reach a deal with creditors, and worse forecasts are turning into reality with investment capital fleeing for the US and German debt.

    Yield on benchmark US 10-year Treasury fell to its one-week lowest at 2.357% (-0.12%) today, while the paper is up 1 point in price. The longer-term US bonds advanced even greater, up 2 points in value, and yield down 0.12% as well, to 3.134%.

    A similar situation in Germany, with Deutsch Bunds – Europe’s most privileged debt papers – adding 1.21 face amount, or 12.10 euros per 1,000. The yield slumped 0.13% to 0.79%, plunging to as low as 0.71% during the day.

    This means that market volatility in Frankfurt and New York is declining, meanwhile, the global volatility index is rising dramatically, indicating terrible turbulence elsewhere – the worst in Southern Europe and China. Spain’s 10-year debt yield rose 0.23% to 2.34%, the greatest advance since early May. Yield on Greek papers skyrocketed 4.19% to 15.03%, highest since late 2012, but still below the March 2012 record highest of 44.21% when the nation’s debt was restructured.

    The CBOE Volatility Index (known as VIX) jumped 16% to 16.27 points, and, though still below its historical average of 20 (Greece is a relatively small nation), it is at its two-month highest.

    Meanwhile, the US economy sent another signal of acceleration with pending home sales at their 9-year highest. Though failed to support stocks, the data will come in handy after the Greek situation finally clears, so a major (and very speculative given the global turbulence) rally in US stocks is up ahead.

    Greece's Gordian Knot: Syriza Tackles Austerity (404)


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