Europe
Low volatility thanks to closed US markets led to a slow day on Friday with most European stock markets slightly lower with investors unwilling to make any major plays given the uncertainty of this weekend’s referendum in Greece.
European Central Bank Vice President Vitor Constancio indicated the ECB may be willing to provide additional emergency liquidity assistance to Greece if there is a ‘Yes’ vote in the referendum because it would mean reaching an agreement between Greece and its creditors would be easier. He could not say whether the ECB would provide ELA if Greeks vote 'No' on Sunday.
The implication being that Greece does not actually need to be in a bailout program to get the ELA limit raised, the ECB just needs to think it is about to be. Constancio’s comment puts clear blue water between a ‘Yes’ and ‘No’ result because a ‘Yes’ could mean an almost instant end to capital controls and a possibly imminent banking crisis.
Without the European Central Bank’s emergency funding, estimates are that Greece’s banks are days from insolvency so a ‘No’ vote carries a very strong likelihood of a ‘Grexident’.
A ‘No’ vote should see European stock markets gap lower on Monday on the threat of an imminent banking crisis. A ‘Yes’ vote could see a relief rally that an agreement can be reached with creditors but also brings the risk of snap elections if Syriza refuse to sign off on a deal which last week they rejected.
An opinion poll published on Friday by the ALCO institute indicated a slight lead for a ‘Yes’ to the latest creditor bailout terms on 44.8% with 43.4% for the "No" vote that is being pushed by the Greek government.
The final Eurozone service PMI came in matching the preliminary estimates at 54.4, with Germany slightly disappointing but still seeing a 25th month of expansion.
The UK services PMI came in powerfully ahead of preliminary estimates at 58.5, taking up the slack from the slowdown seen in manufacturing as strong domestic demand overcomes sluggish exports.
The FTSE 100 lost ground on Friday, setting it up for the worst weekly drop in a month as disappointing Chinese services data hit mining shares while a number of UK banks including HSBC, Barclays (LONDON:BARC) and RBS (LONDON:RBS) were implicated in an investigation on rigging the Brazilian currency, the real. Land Securities was atop of the main index with rival REIT British Land also making gains.
US
US markets were closed for the long Independence Day holiday weekend.
There was some corporate news with another mega merger inside America’s healthcare industry. Aetna Inc (NYSE:AET) has agreed to buy Humana Inc (NYSE:HUM) for $37bn to create the country’s second largest managed care provider.
FX
The US Dollar was basically flat on Friday except against commodity currencies which took a pasting after week economic data from China, the world’s largest consumer of commodities.
The euro traded higher early on Friday after final Eurozone services PMIs saw a monthly rise, helped by the broadly disappointing US jobs and wage growth reported on Thursday. However, gains flattened out as profits were taken to avoid event risk over the weekend from the Greek election.
The Australian dollar took some huge losses on Friday, breaking to new six year lows versus the US dollar after local retail sales data disappointed coupled with equally disappointing data out of China, the largest consumer of Australia’s commodity exports.
Commodities
Gold saw some modest safe haven flows ahead of this weekend’s Greek referendum backed up by the NFP miss yesterday that reduced the odds of a September rate hike. Crude oil prices were essentially flat with Brent slightly higher and WTI unchanged with futures traders on holiday in Chicago.
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