A week ago, the arrival of ATM lines and capital controls in Greece combined with the bursting of Beijing’s margin-fueled equity bubble plunged financial markets into turmoil and reduced traders and central bankers alike to deer in headlights.
The situation has not changed.
In fact, Sunday’s Greferendum “no” vote and the fact that the SHCOMP only managed a 2% gain after opening 8% higher on the heels of the PBoC’s move to “cross the Rubicon” means today is a lot like last Monday, only deer-in-headlights-er-er.
As such, it comes as no surprise that Soc Gen's Global Asset Allocation Team, who last week advisedclients to “raise cash,” is out reiterating the flight to safety call.
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Of certainties in an uncertain world. Stay with cash for now
Of the poor use of polling companies to anticipate elections results... So, a NO vote. Greek voters expressed themselves clearly, with a 61% majority in favour of something else, when asked to vote on a solution for a better future for Greece. Again, like with the Scottish referendum and the UK general election, the polling companies’ predictions have proved wrong and, until the last minute, markets continued to believe the vote would be extremely close based on the latest surveys. If listed anywhere, one should sell polling companies as they are of little use – something to remember for the UK referendum in a while.
A NO vote, but for what exactly?
Implode, or ask for a new round of negotiations? If an overdue Greek debt restructuring happens, it must come alongside another round of structural reforms, which could help ensure the sustainability of future debt repayments. Mrs Lagarde from the IMF has suggested doubling the duration of the sovereign debt, already one of the longest in the world. The critical date is the 20 July deadline for debt repayment to the ECB: policy makers will need to have found a solution by then otherwise Greek risk will become substantially higher.
Eurozone assets are obviously the most exposed– we are in a risk-off period, so we reiterate the need to have cash in portfolios. The US dollar and US Treasuries are the safest assets in our view. Markets were expecting a Yes vote, so they will be disappointed. As we wrote last week, we don't believe they will panic as policy makers have learned from past errors and continue to show the strong coordination needed to respond to what is, without doubt, a new chapter in the European crisis.
For now, we confirm our view of last week that markets will stay volatile for a while and that one must be protected from this unknown.
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