Capital markets and equities in particular were once again dominated by events that on its own that should not be able to destabalise global economies, however the uncertainty leaves investors fear that possibility. The world appears obsessed by the events unfolding in an economy that is insignificant in comparison to those of the US, China and the rest of Europe.
The exit polls on Sunday suggested early that the no vote will win the day, and the fear is this result will lead to a crisis of confidence in the euro zone. The Greek people have always expressed the view that they wish to remain in the euro; to some, Sunday’s vote may have called that possibility into question. Ultimately it may not be a question of does Europe “kick” Greece out of the euro, but does the Greek government decide to try and repay euro debt with Greek Drachma, in effect kicking itself out. Crisis often brings opportunity, and maybe the current events in Greece will bring short-term crisis but a longer-term opportunity for a solution to the ultimate fate of the euro. Greece is unlikely to ever repay its debt to the rest of the world, the sooner the rest of the world finds a solution to manage this situation the better it will be for all concerned.
European equities recovered some of the early losses at the start of the week, only to give them back as the week ended. The euro indicated to trade below 1.1 to the dollar on Sunday, however remaining above the level of a month or so ago. The ECB have been looking for ways to weaken the euro to help kick start the European economy, perhaps in its own strange way these events will assist them to achieve this
Investor sentiment remains weak for equity markets; the AAII investor survey reported another fall in bullish sentiment. The Merrill Lynch investor sentiment survey expressed the view that equity markets were to 3pct away from a contrarian buying opportunity. That theory may well be tested on Monday morning.
Looking ahead to other events in the coming week, and away from events that almost impossible to analyze, the earnings season is once again upon us. Alcoa kicks the season of on Wednesday, but for now Greece will continue to dominate the headlines.