Greek Finance Minister Yanis Varoufakis has remained defiant that his country will not endure the austerity that Greece's creditors in Europe insist upon. Prime Minister Alexis Tsipras boldly declared that European leaders wouldn't dare throw Greece out of the eurozone, striking a combative tone even with his government on the brink of default. Yet, this morning, the Greek premier asked Europe for another 2-year bailout program while negotiations continue. Nonetheless, Greece is still set to enter arrears—default—on its IMF loan at midnight, becoming the first EU country to do so.
In spite of their fiery rhetoric, the debt-ridden Greek government is well on its way toward the largest sovereign default in history, and a possible 40% devaluation with the return to the drachma as national currency. In fact, with Greece at odds with its begrudging partners in Western Europe, the former Warsaw Pact countries in Eastern Europe are no more sympathetic to the plight of their Greek counterparts, fed up with Greece's cries of being victims when most of its people—even now, amid crisis—enjoy much higher standards of living than those in Bulgaria, Lithuania, etc.
Yesterday in the Markets
Greek stocks and bonds cratered with the realization that the country was going to miss its $1.6-billion loan repayment to the IMF today. Greek 10-year bonds slumped, sending yields 387 bp higher to 14.34%. The dollar lost ground after an early surge, turning negative by mid-morning and closing 0.57% lower on the DXY at 94.9. The euro recovered gradually from an initial sell-off, closing 0.68% higher at $1.124. The eurozone's common currency, despite the upheaval over the weekend with Greece, has managed its best quarterly performance in 4 years.
With Greece in turmoil, issuing a bank holiday until at least July 6th as well as capital controls to keep money from fleeing the country, the bonds of traditionally strong countries saw safe haven demand. The U.K.'s 10-year Gilt yield dropped 11 bp to 2.07% and the German 10-year Bund yield fell 13 bp to 0.79%. 10-year Treasuries slid 10 bp to 2.32%. Wall St traded about 2% lower, pushing both the Dow Industrials and the S&P 500 negative for the year. The S&P saw its largest one-day sell-off in over a year, remaining right at its 200-day moving average, while the Nasdaq fell the furthest at -2.4%. Meanwhile, ATM withdrawal limits in Greece are limiting citizens to just €60 ($67) per day.
The precious metals were mixed, with gold making a modest 0.5% gain to close just above $1,180/oz. Silver added a cent to $15.76/oz, while palladium continued its losing streak by closing 1.77% lower (-$12) at $665/oz. Platinum was flat at $1,080/oz. WTI crude lost 2.3%, followed by Brent crude at -2.1%, sending the oil benchmarks to 3-week lows, yet weakness in the dollar later in the day helped curb their losses.
Factors Affecting Gold Today
Markets were largely subdued this morning in response to Greece, with much of the action taking place yesterday. U.S. stocks opened higher before slipping back near unchanged, while the metals were marginally lower. European markets were slightly in the red, while the euro lost about a quarter of a percent. Now, everyone seems to be waiting and watching to see how bad things will get. Greece will still hold a referendum on July 5th to let the public decide whether or not the country wants to make the concessions and economic reforms that creditors are demanding.
With the dollar back up to 95.5 on the DXY, the precious metals opened slightly lower. The metals would be buoyed, however, by any weakness the dollar shows as the Greek situation progresses. Moreover, don't expect Fed Chair Janet Yellen to budge off of her September timetable for the first increase to the federal funds rate, as the crisis in Greece has been judged to be ultimately inconsequential to the well-insulated U.S. economy, according to the Fed. The central bank chief is correct enough that much of the attention on Greece and Tsipras is politically driven, exacerbating the global community's economic concerns.
The S&P Case-Shiller home price index showed a 0.3% gain in April, coming in below analysts' expectations of a 0.8% increase. Home prices are up 4.9% year-over-year, falling short of expectations of 5.5%. This gave Wall St a bump, but U.S. indices began to track lower in morning trading, giving up most of their early gains.
In developments in the Middle East, both Turkey and Jordan are contemplating military operations in Syria to set up buffer zones where refugees can be treated on the Syrian side of the border. Turkey would also like to prevent the Kurdish areas along their border from uniting, as Kurds make up the largest ethnic minority in Turkey.
Tomorrow's ADP Employment report will carry the day, though it will be joined by the ISM manufacturing index, the PMI manufacturing index, the EIA petroleum status report, and the most recent construction spending numbers.