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Photo: AFP
Photo: AFP

Markets’ underwhelming reaction to Greece

The shock of a likely Grexit was expected to roil markets across the world

The shock of a likely Grexit was expected to roil markets across the world on Monday. But after the hype and the hoopla, the markets seemed distinctly underwhelmed.

Indian, Indonesian, Filipino and Thai markets ended the day down, but all by less than 1% (see chart above). In the Indian market, provisional data showed foreign institutional investors sold in the cash segment, but the amounts weren’t much larger than usual. So far, the Asian markets have been unimpressed. But it’s worth keeping a wary eye on the Chinese market, where a rate cut by the panic-stricken central bank couldn’t stop the slide.

European stocks, of course, fell quite a bit, which reflects the uncertainty hanging over the region. But even here, at the time of writing this story, the stocks were off their lows. Also, both the MSCI UK and MSCI Germany indices are still higher than the lows that they touched in mid-June (see chart above).

Bond yields of the peripheral European nations such as Italy, Spain and Portugal reacted as predicted, moving up sharply. Even so, they’re much lower than the heights they touched last April (see chart above) and far away from the summits they reached at the time of the last Grexit scare in 2011 and 2012. That goes for German bond yields, too. Greece is a small economy that comprises less than 2% of euro zone’s gross domestic product and compared with 2011-12, the rest of Europe is in a much stronger economic position. Also, the European Central Bank will not stand idly by.

Perhaps nothing sums up the market reaction quite so well as the euro. It is, after all, the currency that is at the centre of the Greek tragedy. But neither did it fall as hard as was feared, nor has it brea-ched the lows it touched against the dollar in mid-April (see chart above).

Lastly, one measure of how far the markets have been spooked is seen from their turning to the safe haven of gold. While international spot gold prices were up about 0.8% at the time of writing this story, they are still nowhere near this year’s highs (see chart above).

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