- Sunday’s Greek referendum is set to be a key risk event for traders given the uncertain result and the implied consequences for the country’s future within the Eurozone
BACKGROUND
The referendum on Sunday will likely have a significant impact on the prospects of Greece reaching a new bailout agreement and the immediate future of the governing Syriza party. Following the expiration of the second bailout and the missed IMF repayment on 30th June, Greece has had to impose capital controls while negotiations between the country and its creditors have been put on hold until after the referendum. Eurozone officials have indicated that a “No” vote would likely mean a Greek exit from the currency union although the Greek government sees the vote as only pertaining to the terms of a bailout programme.
LATEST POLLS
Most analysts expect the Greeks to vote “Yes” in the referendum and for a “Grexit” scenario to be avoided although recent opinion polls have shown no firm indication for a result either way. The latest GPO poll has the "Yes" vote at 44.1% and "No" at 43.7% and Alco puts the “Yes” figure at 41.7% against 41.1% for “No”.
MARKET REACTION
In the event of a “Yes” vote:
A “Yes” vote would be the more market-friendly result with European equities likely to see a relief rally in the short-term while there could be a temporary dip in Bund prices. Analysts at Scotia forecast that EUR/USD could rise to as high as 1.1350 on a positive referendum result while Goldman suggests EU stocks could gain around 10% if a bailout agreement was then later reached. However, any rally on Monday could be short-lived given that new elections may be needed before talks with creditors can be resumed.
In the event of a “No” vote:
A “No” vote could weigh on equity markets due to the increased risk of a Grexit while spreads on peripheral EGBs may widen on fears of potential contagion (Spain, Italy). The EUR could also weaken against its major peers with analysts at Morgan Stanley saying a drop in EUR/USD to the 1.0800 area over the coming weeks is a possibility. On the other hand, the ECB is primed to limit contagion risks across the periphery by increasing debt purchases while sources have suggested that the Eurozone may still seek a third bailout plan for Greece even in the event of a negative result.
REFERENDUM TIMELINE
Sunday 5th July:
Polls open – 0500BST/0000EDT
Polls close – 1700BST/1200EDT
First exit poll – Shortly after 1700BST/1200EDT
~20% of votes counted – 1900BST/1300EDT
~50% of votes counted – 2100BST/1600EDT
~70% of votes counted – 2200BST/1700EDT
~90% of votes counted – 0000BST/1900EDT