Global stock markets are in turmoil as the socialist government in Greece imposes capital controls and closes the stock market and all banks. Unable to ignore the insolvency of the Greek banking system any longer, the European Central Bank had to stop shoveling money to them as Greeks withdrew up to €1 billion a day in deposits.
Chinese stocks closed over 3% lower Monday, after dropping over 19% the previous two sessions, even after Beijing cut interest rates for the fourth time this year.
Gold opened $10 higher in Asia, moderated to around $3 up, then popped again on short covering at the COMEX open.
Yesterday in the Markets
Metals were mostly steady on either side of unchanged Friday, as gold gained $1.30, palladium gained $1, platinum lost $3 and silver lost 9 cents. Oil ended lower over worries that Iran would actually sign a deal limiting its nuclear program and unleash an extra million barrels of crude per day onto the market.
The Dow close up .3%, but ended the week .4% in the red. The S&P 500 closed down nearly .6% on the day, and down .4% on the week. The Nasdaq fell .6% Friday, down .7% for the week.
The yield on the 10-year T-note closed at 2.53%, a nine-month high, while the 10-year German bund also fell, with the yield rising to .93%.
Factors Affecting Gold Today
The end is nigh for Greece and its membership in the European Union. The socialist Syriza government closed the stock market, all banks, and imposed capital controls, after the European Central Bank refused to raise the more than €84 billion limit on emergency loans to the Greek banking sector. ATM withdrawals have been limited to €60 a day. Even with this restriction, if every Greek adult withdraws €60 a day, an additional €3.5 billion will pulled out of the banking system in a week. Businesses are refusing to accept credit cards in payment, to both insure against loss and to gather in cash to use in paying their own bills.
Greek prime minister Alexi Tsipras, unable or unwilling to bring the bailout agreement to a vote in Parliament, called a surprise national referendum set for next Sunday. The problem with that is, Greece owes the IMF a €1.6 billion payment tomorrow, or it will be in default. Tsipras is accusing the ECB of undermining the democratic process in Greece by not pumping more billions into the banking system for another week.
French president Hollande made a public appeal for the Greek leftists to come back to the negotiating table, noting there were only “a few hours before the negotiation is closed for good.” German chancellor Merkel said that there is no real reason for another summit of EU national leaders, with no movement on the part of the Greeks. She also noted that there was no legal foundation to keep pumping relief money into Greece once the current bailout ends tomorrow, even if there was a political will to do so.
Wall St. mogul Mohamed El-Erian sees an 85% chance of Grexit, with plenty of pain to follow. The first signs of Greek contagion this morning were the stocks of several Italian banks not trading, due to exposure to Greece.
Greece is just a tiny part of the EU, with a GDP equal to that of the state of Louisiana. In and of itself, its exit from the EU would not matter a great deal (besides the hundreds of billions of dollars in bad loans it would default on.) The greater fear in Europe is that leftist parties in Italy and Spain could get the same idea, leading to the breakup of the Eurozone.
The Chinese stock market fell for the third day on Monday, but nothing like the combined 19% for Thursday and Friday. Margin calls are flushing out some investors who borrowed from unregulated lenders in order to buy stocks. Chinese officials are mulling whether to suspend the issuance of IPOs (one of the largest sources of runaway stock prices and margin buying) in order give the market a chance to stabilize.
One bright spot for Wall St was pending home sales coming in at a nine-year high, as people scramble to lock in a mortgage before the Fed raises rates (probably in September).
Headlines will be full of more Greek drama tomorrow, but Tuesday is also the self-imposed deadline for an agreement on limiting Iran’s nuclear program in exchange for sanctions being lifted.
Unemployment and retail sales reports for Germany tomorrow have a chance of affecting markets, with home prices and consumer confidence on tap in the U.S.